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“It was a mistake for Canada to vow to implement that tax,” Leavitt said, adding that Carney spoke to Trump Sunday about dropping the measure, which would have required a number of American tech giants to submit their first payments on Monday.

Carney, speaking briefly to reporters later that afternoon, confirmed negotiations between both countries had resumed but did not respond to a question about the accuracy of the White House’s framing that he “caved” during the call.

The prime minister said he made the concession as “part of a bigger negotiation,” pointing to the agreement he hopes to reach with the Trump administration to resolve the broader trade dispute by July 21.

“It doesn’t make sense to collect tax from people and then…remit them back, so it provides some certainty. And as I just said, negotiations have restarted. We’re going to focus on getting the best deal for Canadians. We’re making progress,” Carney said.

Two days earlier, talks between both countries were put on ice after Trump said he was “terminating ALL discussions on Trade with Canada” due to the “egregious” tax.

By Sunday night, Canadian officials announced that the measure, a policy the Liberals had championed for years under former prime minister Justin Trudeau, would be scrapped.

A government press release said Finance Minister Francois-Philippe Champagne had cancelled the planned June 30 collection of the tax, and that he would introduce legislation to formally rescind the measure.

The digital services tax was enacted in 2024, though it was retroactive to 2022 and set to come into effect this year. It would have imposed a three–per-cent tax on certain domestic and foreign tech giants earning more than $20 million in revenue from digital services, like social media and online advertising services, that require the engagement, data and content contributions of Canadians to operate. Companies that also sold or licensed Canadian user data were also captured by the policy.

The Parliamentary Budget Officer estimated in 2023 that the tax would boost Ottawa’s revenues by $7.2 billion over five years.

But the tax has long served as a trade irritant between Canada and the U.S., prompting fears that it would spark, or be used as a wedge, in a future trade war.

Major Canadian business organizations also strongly opposed the measure, warning that the tax would ultimately be passed on to Canadian consumers, businesses, and investors through higher costs.

“Now, with it off the table, we think it’s going to lower taxes for Canadians. It’s going to make some of their services more cost-effective, but it also sends a signal that we’re a good place to do business,” David Pierce, the vice-president of government relations for the Canadian Chamber of Commerce, told the Star.

Carney’s move also won support from the Council of Canadian Innovators (CCI), an association that previously backed the measure as “a necessary tool to ensure global technology giants contribute their fair share in Canada.”

CCI president Benjamin Bergen said in a statement that dropping the tax was a “strategic move” he hoped would “renew dialogue” with the U.S.

The Computer & Communications Industry Association, an international trade organization, also lauded Canada for walking back a tax the group has long said unfairly targets U.S. exporters.

“We urge other governments that have proposed or enacted DSTs, including the U.K., France, Germany, Italy and Pakistan, to follow suit and commit to fair, reciprocal international tax principles,” wrote CCIA president Matt Schruers.

While the Liberals had been pushing for a multilateral tax approach through the Organization for Economic Co-operation and Development, work on that front eventually stalled, prompting Canada to chart its own path forward in the interim.

Taylor Owen, director of McGill’s centre for media, technology and democracy, said that the U.K. was able to keep its own digital services tax, despite Trump’s opposition to the policy, while also signing a trade deal with the U.S.

“It probably shows more than anything that we need new digital governance coalitions that don’t include the U.S., but are designed to collectively act in order to pressure the U.S.,” Owen told the Star.

On Monday, Conservative Leader Pierre Poilievre called out the Liberals for abandoning their previous support for the measure at the “11th hour,” while interim NDP leader Don Davies said “abandoning fair taxation of tech giants is unacceptable appeasement.”

“We really are back to square one with the operations of these companies. You know, tens of billions of dollars of revenue, effectively untaxed in Canada,” Keldon Bester, executive director of the Canadian Anti-Monopoly Project told the Star.

“So I think from a negotiating perspective, as well as a tech policy perspective, it’s quite disappointing,” Bester said, adding that other legislation regulating American tech giants, like Canada’s online streaming and online news laws, could get tangled up in the trade war next.

Allison Christians, the Stikeman chair in tax law at McGill University, said U.S. companies hold immense control over information and media in Canada.

“At some point, you just lose control over a society that you want because your economic prospects depend on a volatile, unreliable trade partner that just changes the deal whenever they want,” Christians said. “So whatever we do, Trump might come up with something next week that he also doesn’t like. And then what? What are we giving up next?”

Correction — July 2, 2025

This article has been updated. Interim NDP leader Don Davies said “abandoning fair taxation of tech giants is unacceptable appeasement.” He didn’t say “tax giants” as incorrectly reported in a previous version.