On the heels of the announced timeline of 30-days for a U.S.-Canada trade deal, our two nations have an opportunity to reset and strengthen the economic partnership that has been the foundation of North American prosperity for generations. Business leaders and associations, including the Canadian American Business Council (CABC), have long advocated for early and collaborative engagement on potential trade irritants before they escalate into larger disputes that strain our integrated economies.
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Canada’s Digital Services Tax (DST) has been a source of friction between the countries for years, but the irritant has now escalated into tangible economic peril. Canada’s plan to collect the DST on June 30, coupled with Section 899 which proposes additional tax on foreign investors from countries with discriminatory tax policy, escalates tensions between two of the world’s closest trading partners at a time when economic cooperation is more important than ever. And as the CABC has long warned, retaliation is now officially on the table with Section 899.
The DST may have been conceived to go after US tech giants, but the impact hits Canadian consumers and small businesses that rely on digital platforms who will also feel the pain of higher prices. Canadian households and businesses are already grappling with inflation, supply chain pressures, and affordability. A new digital tax that could increase the cost of everyday services—food delivery, ride shares, vacation rentals—is not in their interest. The very real threat of U.S. retaliatory measures further penalizes Canadians at a moment when both nations need economic stability.
Beyond the immediate financial impact, DST carries profound implications for American workers and competitiveness as well. Recent analysis suggests up to 3,140 American jobs could be lost as companies adjust to these new costs, while the annual $2.3 billion burden on U.S. businesses will reduce export revenues and shrink U.S. tax base. Meanwhile, small and medium enterprises (SMEs) will face negative trickle-down impactsas the tax stifles their ability to grow, scale, and innovate domestically. Startups will also be deterred from innovating and investing in Canada, stalling the country’s growth. Coupled with Section 899, corporate investment and innovation on both sides of the border is severely at risk.
From a business perspective, the DST also undermines predictability given its retroactive nature. Forcing companies to pay taxes on revenues from 2022 and 2023—years that entirely preceded the law’s enactment—violates broadly accepted international tax principles and creates dangerous precedent. Businesses need time to plan, and imposing retroactive tax undermines financial planning that facilitates economic competitiveness.
The upcoming deadline for DST payment from U.S. companies presents a crucial opportunity to address these concerns through constructive dialogue rather than unilateral actions from either nation. On its end, the Canadian government can demonstrate good faith and commitment to our shared prosperity by suspending the DST’s implementation and eliminating its retroactive provisions. Such a gesture would show respect for our USMCA obligations and create space for the multilateral negotiations both countries have previously supported. Meanwhile, the U.S. can begin by postponing the 90-day implementation timeline of the US tax on foreign investment to further encourage negotiations. Both parties must adopt a constructive approach.
The strength of the Canada-U.S. economic relationship has always rested on mutual respect and shared commitment to fair competition. The Canadian DST undermines both principles. By pausing collection, Canada can reaffirm its dedication to the partnership that has made both our nations more prosperous and secure. In turn, the United States should engage Canada in a spirit of constructive problem-solving. Rather than viewing the DST solely through the lens of conflict, this moment can be used to deepen bilateral dialogue on the future of digital trade, tax fairness, and innovation policy. A strong and modern economic relationship requires ongoing adaptation but also shared principles.
Ultimately, the Canada–U.S. partnership has long been grounded in a recognition that our economic success is deeply interconnected. Addressing the DST in a collaborative way would not only uphold these values but also strengthen our ability to compete globally. Our cross border economic ties are too valuable to sacrifice for short-term, unilateral revenue generation. The path forward requires dialogue, not discrimination—and the time to choose that path is now.
