A couple of days back, I characterized Prime Minister Mark Carney’s determination to push ahead with the Digital Services Tax “insane”, as it was overwhelmingly likely to trigger a strong reaction from the Trump administration. As it did. So, finally recognizing they were in a no-win situation, the federal government announced at the last minute that they wouldn’t be demanding the literally billions of dollars from the US “tech giants” after all. Michael Geist can legitimately say “I told you so” on this issue:

President Trump Attends G7 Summit in Canada by White House https://www.whitehouse.gov/gallery/president-trump-attends-g7-summit-in-canada/ CC BY 3.0 US
After years of dismissing the warnings of likely retaliation, the Canadian government caved last night on the digital services tax. Faced with the prospect of the U.S. suspending trade negotiations, Finance Minister François-Philippe Champagne announced that the government would drop the DST altogether, payments scheduled for Monday would be cancelled, and legislation will be forthcoming to rescind the legislation that created it in the first place. Over the weekend, I wrote about the repeated warnings that the DST was a serious trade irritant with the U.S. that cut across party and presidential lines. While ignoring the risks was bad enough, I argued that Canada played its DST card too early. Rather than delaying implementation in the hopes of incorporating it into a broader trade deal with U.S., it marched ahead, leading to an entirely predictable response from U.S. President Donald Trump. That left Canada in a no-win situation: stick with the DST but face the prospect of higher tariffs or embarrassingly drop the DST (and $7.2 billion in revenue over five years) with only restarting negotiations that were on until government overplayed its hand to show for it.
It is hard to overstate how badly the government managed the DST issue over the past five years. It alienated allies by pushing ahead with the DST despite efforts at an international deal at the OECD, stood alone in rejecting an extension of a moratorium on new DSTs, made the DST retroactive which solidified opposition, and continually downplayed the concerns of successive U.S. Presidents and Members of Congress from both sides of the aisle. Meanwhile, when companies began passing along the costs of the DST to Canadian businesses, it did nothing. And when they urged the government to delay implementation to at least allow for the issue to be incorporated into a broader trade pact, it ignored the advice.
At every step, there were better options. This year, the likelihood that the DST would come to a boil was obvious to anyone who was paying attention. But rather than following the UK strategy, which managed to salvage a smaller DST (2% rather than 3%) as part of a bigger agreement that includes a commitment to support UK digital access to the U.S. market and to negotiate a larger digital trade deal, Canadian officials seemingly assumed that the U.S. was bluffing and would not retaliate.
If this sounds familiar, it is because the Canadian government misreading the tech sector has become a hallmark of its policy. Talk tough, practically dare companies and foreign governments to respond, and then frantically seek an exit strategy when they do. This was the case with the Online News Act and Meta’s blocking of news links, with the government’s AI regulation which new Minister of AI Evan Solomon says will not be re-introduced, with the Online Harms bill, and now with the DST.




