Canada’s Trade Uncertainty and Trade Deals with the U.S.

• U.S. President Donald Trump announced a 35% tariff on Canadian imports on July 10, despite Ottawa rescinding a 3% digital services tax.

• Canada expected to generate about $5 billion from DST on revenues from Canadian-source digital services over five years dating back to January 1, 2022.

• The 35% tax was imposed despite ongoing trade talks, which Canada hoped would result in a trade deal by July 21.

• The new 35% tax, likely to exempt items compliant under the 2018 U.S.-Mexico-Canada Agreement, has forced Canada to diversify its foreign and economic strategies.

• The tariffs have forced even steadfast allies like Canada to diversify.

• The situation is similar to India and Nepal’s previous trade imbalance, where India closed land ports due to concerns about the treatment of the minority Madhesi community.

• This episode serves as a reminder that mending a trade imbalance should not come at the expense of losing one of its closest allies.