Trade Latest: Canada Pulls Digital Tax to Revive Talks With Trump

Canadian Prime Minister Mark Carney spoke to President Donald Trump on Sunday. (Getty Images)

Trade negotiations with Canada, the second-biggest U.S. trading partner after Mexico, are back on.

Canada’s Prime Minister Mark Carney said Sunday that the two countries would try to reach an agreement by July 21. U.S. President Donald Trump agreed to restart talks after abruptly ending them Friday. To bring the U.S. back to the table, Canada said it wouldn’t collect a digital services tax that was due to start Monday that Trump said unfairly targeted U.S. technology firms.

It’s good news for both countries, which trade heavily with each other and have been trying to work out new tariff arrangements since Trump took office. There’s still a 50% tax on steel and aluminum from Canada, and there are levies as well as on goods that fall outside the U.S.-Mexico-Canada trade agreement.

Trade with Canada is equivalent to about 3% of U.S. gross domestic product. It is also the largest foreign market for U.S. exports and has a vital role in the U.S. car and energy industries. On the other hand, about one fifth of Canadian economic output depends on U.S. trade, and its GDP probably shrank in the second quarter and may fall again in the third because of trade uncertainty.

Canada’s plans to start collecting a 3% digital services tax on Monday, including retroactive revenue back to 2022, was a sticking point for Trump because it would largely hit U.S. firms such as Google-parent Alphabet, retailer Amazon, and Facebook-parent Meta Platforms.

Trump gave a 90-day reprieve to his widespread global tariffs until July 9 —and the deadline for countries to complete negotiations is fast approaching. Last week Washington said deals with several countries were close, and the deadline may be extended as long as progress is being made.

Write to Brian Swint at brian.swint@barrons.com