Canada has withdrawn its proposed digital services tax (DST) on major U.S. technology companies just hours before it was set to take effect, in a move aimed at restarting trade negotiations with the United States.

The decision came in response to mounting pressure from U.S. President Donald Trump, who on Friday suspended trade talks and criticised the planned tax as a “blatant attack” on American economic interests. Trump also threatened retaliatory tariffs on Canadian imports if the tax went ahead.

The DST, originally scheduled to take effect today, would have imposed a 3% levy on Canadian revenues exceeding $20 million from tech giants such as Amazon, Meta, Google, and Apple. It was projected to cost the companies over $2 billion annually.

Canada’s Finance Minister, François-Philippe Champagne, confirmed the reversal in an official statement, highlighting that the tax was first proposed in 2020 to address concerns that large digital companies were generating significant revenues from Canadian users without paying adequate local taxes.

“Canada’s preference has always been a multilateral agreement related to digital services taxation,” the statement read, pointing to ongoing global discussions around fair taxation of multinational tech firms.

The proposed DST was part of a broader global trend, with countries like the United Kingdom and France introducing or planning similar taxes aimed at large technology companies whose global structures often minimise their corporate tax obligations.

Trump, who has aligned closely with U.S. tech leaders during his second term in office, labelled Canada’s policy as “egregious,” claiming, “Economically, we have such power over Canada.” His administration emphasised the trade imbalance, noting that while over 75% of Canada’s exports — worth more than $400 billion annually — go to the U.S., only 17% of U.S. production heads north.

The abrupt U-turn by Canada follows months of tense diplomacy. Upon returning to office, Trump signalled a harder stance on trade with Canada, even going as far as to suggest sweeping tariffs and, controversially, the possibility of annexation. The confrontational rhetoric contributed to a political shake-up in Canada, helping return the Liberal Party under new leader and former central banker Mark Carney to power.

Despite the recent strain, both nations had expressed hope for a renewed trade pact by July 21. Canada’s withdrawal of the DST is now seen as a key step toward resuming those negotiations and stabilising economic relations with its largest trading partner.