Back against the wall, Canada did right to appease Trump on digital tax

Opinion

Giving in to a bully never feels good, but every once in a while, it’s the smart thing to do.

This week, Prime Minister Mark Carney did an abrupt about-face and announced that Canada was cancelling the digital services tax it had threatened to levy on tech giants including Amazon, Google and Meta.

The tax, similar in nature and magnitude to similar levies charged in countries around the world, was an attempt to recoup some revenue from the tech companies that have generated billions in revenue as they provide digital services to Canadians without having to pay any tax. The idea of taxing digital services provided by companies in another country is, quite frankly, fairly common.

Nevertheless, U.S. President Donald Trump announced on Fox News Friday that he was going to abandon intensive tariff negotiations with Canada unless Carney abandoned the digital tax. Less than a day after Trump levelled his latest threat, Carney and the bombastic U.S. president had a call on Sunday night. When everyone awoke Monday morning, the tax was no more.

The decision cost the Canadian treasury an estimated $2 billion in retroactive tax levies, and roughly $900 million a year going forward.

Did Carney roll over and wiggle his legs in the air for Trump? Perhaps. But in this instance, the reason Carney backed down is arguably more important than the backing-down itself.

The uncertainty that has been triggered in this country from the Trump administration’s on-again, off-again tariff threats has taken a bite out of consumers and thrown many businesses in a broad array of sectors into financial disarray. Locking down a new continental trade deal is our last, best hope at getting off the Trumpian roller-coaster.

Still, it comes at a price, both in terms of totally justifiable government revenues and pride. It doesn’t really come with assurances that the mythical trade deal that Trump has been promising will put an end to his whimsical threats.

Trump certainly has his own policy priorities; punishing countries that have economies built on manufacturing cheap goods that flood the American market has been his rallying cry for years.

At the same time, however, he is susceptible to serving private interests that manage to curry his favour. That is certainly the case with the Big Tech companies that donated millions to his campaign and inauguration while bending a knee and capitulating to whatever nonsense Trump can imagine.

The tech companies have eliminated diversity, equity and inclusion programs, stopped supporting Pride and other LGBTTQ+ organizations and events, and pledged to live under a self-imposed gag order on tariffs and the heavy-handed immigration deportations. All of this played a huge part in Trump taking up the fight to defeat digital tax schemes.

Worse, those who have been following Canada-U.S. relations during Trump 2.0 will notice that what happened this weekend is an echo of the pattern Trump has established in his interactions with Canada.

Will abandoning (for now) the notion of a digital tax guarantee that Trump won’t pick some other issue as the straw that breaks the tariff negotiation’s back? Nope, no guarantees.

Trump is happy to threaten crippling tariffs on Canadian goods and services whenever he or his acolytes identify a new issue of derision.

Since his inauguration in January, the critical issue that Trump linked to trade talks has changed repeatedly: illegal migrant traffic and border security; fentanyl; restrictions on U.S. banks doing business in Canada; demand-side management schemes for eggs, milk and cheese; defence spending; and, now, the digital tax.

Trump threatens, Canada responds. On this particular issue, the response is particularly maddening.

There is no persuasive economic or moral argument for allowing these gargantuan technology companies to continue earning money in Canada on a tax-free basis. It’s not just Canada that thinks so.

The member nations of the Organization for Economic Co-operation and Development are currently trying to establish a standard global tax for digital services. Even though there are many countries that levy such a tax — including the United Kingdom, and most of the European Union, including France, Germany and Italy— most reasonable observers know that having a single, predictable tax rate in all countries would make much less of a political concern.

Until the OECD gets its act together — and given recent struggles, it’s not certain it will — Trump can pick off digital tax countries one by one using his tariff bazooka.

In the day and age of “elbows up,” Carney’s critics may disparage him for giving in (again) to Trump. In the long run, this one issue is not worth losing a chance to put a lid on the violently raging pot that is Trump’s trade policy.

Leaning once again into the parlance of hockey, Canada needs to be calm and calculated. Give in, but don’t give up.

And then, take some numbers so that, at some later day, we can kick some butt.

dan.lett@freepress.mb.ca