Digital Sales Tax Could Be a Negotiating Tool in Canada-US Tariff Discussions: Ontario Minister

Minister of Economic Development, Job Creation and Trade Vic Fedeli speaks at the podium during a press briefing at Queens Park in Toronto on June 2, 2020. Rene Johnston - Pool/The Canadian Press

Canada’s digital sales tax should become “a bargaining chip” in Ottawa’s tariff negotiations with the United States, Ontario Trade Minister Victor Fedeli says.

Fedeli was in Washington, D.C., on Dec. 9 to meet with Republicans who have the ear of U.S. President-elect Donald Trump.

One recurring theme in these meetings was the digital services tax (DST), which requires U.S. tech giants to pay 3 percent of revenues on their operations in Canada. The DST was implemented July 4 following an order in council by Finance Minister Chrystia Freeland.

The DST was brought up in “every single meeting” he had while in Washington, Fedeli told CTV’s Vassy Kapelos. He said “100 percent” of the people he spoke with are opposed to the tax.

“They all feel that Canada is unilaterally making the wrong move,” he said during the Dec. 9 interview. “This is unilaterally today, what we’ve heard from every single meeting.”

Ottawa could use the DST as a bargaining chip with the U.S. in its bid to get Trump to drop his threat of 25 percent tariffs on all Canadian exports, Fedeli suggested.

“I’m really hoping … this is set up as one of the bargaining chips that they will put on the table with the incoming Trump administration in terms of the potential tariffs,” Fedeli said. “This is something that I hope they’re prepared to give up.”

Trump has pledged to slap 25 percent tariffs on all products from Canada and Mexico when he takes office in January 2025 if the countries do not stem the flow of illegal immigration and drugs through their borders into the United States.

Prime Minister Justin Trudeau met with Trump at the incoming president’s Florida home late last month to discuss the tariffs. The two discussed the fentanyl crisis and trade during the Nov. 29 visit, but no assurances were provided about the removal of the tariffs although federal officials have said the meeting went well.

Since then, Trudeau has hinted that Ottawa will respond to U.S. tariffs by using retaliatory measures like it has in the past.

Canada imposed retaliatory tariffs in 2018 after then-President Trump introduced a 25 percent tariff on Canadian steel and a 10 percent tariff on Canadian aluminum. Canada’s response included tariffs of up to $16.6 billion on steel, aluminum, and several other products from the United States. The tariffs were lifted on both sides in 2019 after the two countries reached an agreement.

“We’re still looking at the right ways to respond, but our responses to the unfair steel and aluminum tariffs were what ended up lifting those tariffs last time,” Trudeau said in a Dec. 9 speech.

Fedeli, however, said the DST card is one Canada needs to seriously consider playing. He said he has relayed Ontario’s viewpoint on the DST to Ottawa, but “they haven’t changed their position yet.”

“We’ve written in the past to Prime Minister Trudeau, saying the digital services tax, the DST, is not the way to go,” he said.

Fedeli also identified enhanced border security and beefing up Canada’s defence spending to meet its 2 percent NATO target as key components in averting the potential tariffs. These components along with halting the DST would make a difference in negotiations with the U.S., he said.

Fedeli said it’s time to “take the president at his word,” and that the tariffs are not going to go away unless Canada has the right bargaining chips.

Ontario Campaign

The minister said Ontario is doing its part by meeting with Republicans who have influence with the president and pressing the message that the tariffs will not impact Canada alone, but will also hurt Americans.

“What we’re doing is talking to the people that talk to the president … that sit in the Senate and sit in in the house of Congress,” he said. “This is really important that we take them our message.”

Part of getting that message across, Fedeli said, is Ontario’s recently released ad campaign touting the province as the country’s third-largest trading partner and the No. 1 export destination for 17 states.

“We’re spending tens of millions of dollars on the commercials, which, by the way, are being seen by everybody down here,” he said. “They’ve commented about them at every stop we’ve made.”

The ad will run in Washington through the end of the month and will be launched across the U.S. in January, running until the end of March, Fedeli said, noting that the commercial should have an esimated 100 million viewers.

“This is really important that we continue with this strong message and a little more in the private meetings that we’re having,” he said. “We’re saying things like, ‘Guys, we have critical minerals here in the province of Ontario. You have one nickel mine, you have one lithium mine. We’ve got all of these critical minerals in our backyard in Ontario that you need. Let’s sit down and talk.’”

Premier Doug Ford has been pushing the province’s connection with the U.S. since the tariff plans were announced, noting that Ontario’s two-way trade with the United States amounts to $500 billion annually.

He and his fellow premiers met with the prime minister at the end of last month to discuss border security and the need for a unified approach in dealing with the tariff threat.

Ford, whose province’s auto sector would be severely impacted by the tariffs, has called for urgent action on border security and asked Ottawa to take a more proactive stance to prevent the “economic chaos” the tariffs would inflict.