A simmering trade dispute between the U.S. and Canada unexpectedly boiled over last week as former U.S. President Donald Trump blasted Ottawa’s new digital services tax — calling it a “blatant attack” on American companies — only for the Canadian government to swiftly backtrack days before enforcement was set to begin.

What triggered the firestorm? A newly announced 3% tax on digital services, retroactively applied to revenue generated since 2022, targeting large multinational tech firms such as Amazon, Meta, Google, and Uber. According to NBC News, the levy could have hit U.S. companies with a collective $2 billion tax bill — with payment due by the end of June.

Trump Responds with Threats and Tariffs

In characteristic fashion, Trump didn’t hold back. In a heated post on Truth Social, he accused Canada of “copying the European Union” and claimed the policy amounted to economic aggression. He further declared an immediate halt to ongoing trade negotiations and warned that new retaliatory tariffs against Canada would be announced within a week.

“We have the cards,” he told reporters at the White House, doubling down on his stance. “They were foolish to do it… It’s not going to work out well for Canada.”

Trump also extended his frustration toward Europe’s own digital taxation efforts, calling EU leaders “nasty people” and asserting that only the U.S. should have the right to impose financial penalties on American firms.

Carney Stays Measured — Then Makes a Move

Canadian Prime Minister Mark Carney, 60, known for his previous role as a central banker, offered a much more restrained response when asked to comment on the brewing dispute. “We’ll continue to conduct these complex negotiations in the best interests of Canadians,” he said.

But behind the scenes, things were moving quickly.

Sources say a private call between Trump and Carney over the weekend paved the way for a de-escalation. Within 24 hours, Canada made a surprise announcement: the government would suspend implementation of the digital tax “in anticipation of a mutually beneficial agreement” with the U.S.

Political Pressure Mounts

Trump’s aggressive reaction may have been fueled in part by growing bipartisan pressure in Washington. A group of U.S. lawmakers had urged swift retaliation, warning that allowing a retroactive, foreign-imposed tax on American firms would set a dangerous precedent.

“It’s not just about tech,” one congressional aide told the press. “This is about protecting the U.S. tax base and preventing copycat policies elsewhere.”

A Temporary Truce — But for How Long?

In a statement issued late Sunday, Carney confirmed that the Canadian government would resume negotiations with the U.S. under the framework established at the G7 Leaders’ Summit, aiming for a July 21, 2025 deadline for resolution.

While the immediate crisis may have been defused, experts note that the underlying tensions — over digital taxation, trade balance, and sovereignty — remain unresolved.

For now, both sides appear to have stepped back from the brink. But with high stakes and two strong-willed leaders involved, this might only be a pause in a much longer chess match.