By David Lawder, David Ljunggren and Susan Heavey
WASHINGTON (Reuters) -U.S. President Donald Trump abruptly cut off trade talks with Canada on Friday over its tax targeting U.S. technology firms, saying that it was a “blatant attack” and that he would set a new tariff rate on Canadian goods within the next week.
The move plunges U.S.-Canada relations back into chaos after a period of relative calm that included a cordial G7 meeting in mid-June where Trump and Canadian Prime Minister Mark Carney agreed to wrap up a new economic agreement within 30 days.
It also came just hours after U.S. Treasury Secretary Scott Bessent struck an upbeat tone on trade, touting progress had been made with China on reviving the flow of critical minerals for the U.S. manufacturing sector and in other key tariff negotiations.
The often-chaotic rollout of Trump’s import levies since his return to office this year has frequently whipsawed financial markets, and have begun to weigh on consumer spending, the bedrock of the U.S. economy.
U.S. stocks were briefly batted lower by his broadside against Canada, but the S&P 500 and Nasdaq managed to close out the week at record highs.
Trump’s action comes ahead of Canada’s plans to begin collecting on Monday a previously enacted digital services tax on U.S. technology firms, including Amazon, Meta, Alphabet’s Google and Apple, among others.
The tax is 3% of the digital services revenue a firm takes in from Canadian users above $20 million in a calendar year, and payments will be retroactive to 2022.
Trump, in a post on his Truth Social media platform, called the tax “a direct and blatant attack on our country” and said Canada was a “very difficult country to TRADE with.”
“Based on this egregious Tax, we are hereby terminating ALL discussions on Trade with Canada, effective immediately,” Trump said. “We will let Canada know the Tariff that they will be paying to do business with the United States of America within the next seven-day period.”
Speaking to reporters at the White House, Trump said that the negotiations with Canada would not resume “until they straighten out their act,” adding that the U.S. holds “such power over Canada.”
Canada is the second-largest U.S. trading partner after Mexico, and the largest buyer of U.S exports. It bought $349.4 billion of U.S. goods last year and exported $412.7 billion to the U.S., according to U.S. Census Bureau data.
Carney’s office responded to Trump’s announcement by saying: “The Canadian government will continue to engage in these complex negotiations with the United States in the best interests of Canadian workers and businesses.”
Bessent sought to downplay the U.S.-Canadian dispute in a CNBC interview, saying U.S. Trade Representative Jamieson Greer would likely open a Section 301 probe into Canada’s digital tax that would clear the way for tariff retaliation in the amount of harm to U.S. firms, which he said was roughly $2 billion.
The U.S. has prepared similar retaliation against European countries that have imposed digital taxes. A USTR spokesperson did not immediately respond to a request for comment.
‘WRAPPED UP BY LABOR DAY’
Earlier on Friday, Bessent said the Trump administration’s various trade deals with other countries could be done by the Sept. 1 Labor Day holiday, citing talks with 18 top trade partners and another revision to a deal with China to reopen the flow of rare earth minerals and magnets.
After a week where tariffs took a back seat to the U.S. strike on Iran’s nuclear facilities and the massive tax and spending bill in the U.S. Congress, the Trump administration’s trade negotiations have picked up.
The United States sent a new proposal to the European Union on Thursday and India sent a delegation to Washington for more talks.
“So we have countries approaching us with very good deals,” Bessent said on Fox Business Network.
“We have 18 important trading partners. … If we can ink 10 or 12 of the important 18, there are another important 20 relationships, then I think we could have trade wrapped up by Labor Day,” Bessent said.
He did not mention any changes to a July 9 deadline for countries to reach deals with the United States or see tariffs spike higher, but Trump said at the White House that he could extend the tariff deadline or “make it shorter.”
Trump said that he would notify countries of their tariff rates within the next week and a half, adding: “I’d like to just send letters out to everybody: Congratulations. You’re paying 25%.”
NEW U.S.-CHINA EXPORT REVISIONS
Bessent said the United States and China had resolved issues surrounding shipments of Chinese rare earth minerals and magnets to the U.S., further modifying a deal reached in May in Geneva.
As part of its retaliation against new U.S. tariffs, China suspended exports of a wide range of critical minerals and magnets, upending supply chains central to automakers, aerospace manufacturers, semiconductor companies and military contractors around the world.
During U.S.-China talks in May in Geneva, Beijing committed to removing the measures imposed since April 2, but those critical materials were not moving as fast as agreed, Bessent said, so the U.S. put countermeasures in place.
“I am confident now that … as agreed, the magnets will flow,” Bessent said, adding that these materials would go to U.S. firms that had received them previously on a regular basis. He later said that the U.S. would begin shipping withheld materials to China when the rare earths shipments resumed.
China’s Commerce Ministry said on Friday the two countries have confirmed details on the framework of implementing the Geneva trade talks consensus. It said China will approve export applications of controlled items in accordance with the law. It did not mention rare earths.
Trump administration officials also held trade talks on Friday with India and Japan, two other countries in advanced negotiations with the U.S.
The Japanese government said in a statement that the two sides will continue to work to “reach an agreement that benefits both Japan and the United States.”
(Reporting by David Lawder, Susan Heavey and Doina Chiacu in Washington, Promit Mukherjee in and David Ljunggren in Ottawa, Nathan Layne in New York and Manoj Kumar in New Delhi; Editing by William Maclean and Sandra Maler)
