Last Friday, US President Donald Trump said he was halting trade talks with Canada and likely adding new tariffs. President Trump said talks would be halted in response to Canada maintaining its digital services tax. However, on Sunday evening, Canada withdrew the digital services tax, and both sides agreed to return to the negotiating table to try to reach a trade agreement by July 21. Trade tensions are already having a negative impact on Canada’s economy.

• Canadian-US trade talks were temporarily halted. Both countries are facing tariffs from one another, weighing on overall economic activity, particularly here in Canada.
• President Trump noted that he was halting talks since Canada left its digital services tax in place. The tax would impact certain technology companies.
• However, Canada removed the digital service tax, which was discussed at the G7 meetings. Both countries will resume negotiations on a new trade deal, hoping a deal can be reached by July 21.
• Statistics Canada reported that Canada’s economy shrank by 0.1% in April. A sharp drop in the goods-producing industry weighed on activity over the month. Foreign orders for Canadian goods fell sharply amid trade tensions with the US.
• Canada ran a record trade deficit in April, owing to a 15.8% decline in exports to the US. Trade tensions with the US are having a negative impact on Canada’s economy. Signs are pointing to a contraction over the second quarter of 2025.

Canadian equity markets fell on Friday, highlighting how fragile the outlook for Canada’s economy is given trade tensions with the US. By Monday, however, tensions about the digital services tax were gone, leaving both sides encouraged that a deal could be reached. Canada’s economy is struggling amid trade disruptions but might be poised to pick up once a deal is reached. A trade deal would remove uncertainty, allowing consumers and businesses to adapt to the new trade relationship.

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