Canada suspended the tax on digital services after significant pressure from Trump.

Canada has abruptly suspended the implementation of a new digital services tax targeting U.S. tech giants such as Amazon, Google, Meta, Uber, and Airbnb. This decision comes just hours before the tax, which was set to take effect starting Monday, July 1 and retroactively, would have come into force.

The 3% tax on revenue caused by Canadian users would have represented an approximate cost of $2 billion for these companies, provoking a strong reaction from U.S. President Donald Trump.

Trump described the tax as "a direct and blatant attack against the United States" and immediately announced the suspension of trade negotiations between the two countries. He also threatened to impose new tariffs on Canadian exports within seven days if Canada did not back down.

"Canada is copying the European Union, which has also implemented a similar tax," Trump stated on his Truth Social network. He also warned that "economically, we have such power over Canada that it's not going to end well for them."

The Canadian measure was initially introduced in 2020 as a way to ensure that large tech companies pay fair taxes on the revenue earned in the country.

However, Canada had also expressed its preference for a multilateral solution within the framework of the Organization for Economic Cooperation and Development (OECD), which has worked for years to establish a global approach to the taxation of digital services. Despite this, faced with delays in international consensus, Ottawa decided to move forward unilaterally.

Tension reached its peak on Friday, when Trump ended trade negotiations and accused Canada of acting in a hostile manner. As a result of these statements and the potential economic consequences of a trade escalation, Canadian Prime MinisterMark Carneyspoke personally with Trump on Sunday night.

In that conversation, both agreed to temporarily halt the implementation of the digital tax in order to resume trade negotiations before the July 21 deadline.

Canada's Finance Minister, François-Philippe Champagne, has already begun the legislative process to rescind the tax, according to the Canadian finance ministry. In a statement, they reaffirmed that the measure was conceived as a transitional solution, with the hope of reaching a global agreement on digital taxation.

This shift represents an effort to preserve the trade relationship with the United States, its main trading partner, and to avoid tariff reprisals that could affect strategic Canadian sectors. The dispute also highlights the ongoing tensions between the need to regulate large global tech companies and the diplomatic complexities that accompany such attempts.

With less than a month to go before the self-imposed deadline for a new economic agreement, both nations now appear focused on redirecting the dialogue and avoiding a trade war.