Trump says he is cutting off trade talks with Canada

US President Donald Trump has said he is cutting off trade talks with Canada “immediately” as the country looks to start enforcing a tax policy targeting big tech companies.

The latest move, which he announced on social media, comes as the neighbouring nations had been working to agree a trade deal by mid-July.

Both countries have imposed tariffs on each other’s goods after Trump sparked a trade war earlier this year and threatened to annex Canada using “economic force”.

On Friday, the US president said he was ending talks due to what he called an “egregious tax” on tech companies and added he would announce new tariffs on goods crossing the border within the next week.

“We are hereby terminating ALL discussions on Trade with Canada, effective immediately,” he wrote on social media.

“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.”

Later in the Oval Office, President Trump told reporters that the US has “all the cards”.

“Economically, we have such power over Canada. I’d rather not use it,” he added.

In brief comments to reporters, Prime Minister Mark Carney suggested that talks would grind on.

“We will continue to conduct these complex negotiations in the best interest of Canadians,” he said.

Canada’s 3% digital services tax has been a sticking point in its relationship with the US since the law was enacted last year. The first payments are due on Monday.

Business groups estimate it will cost American companies, such as Amazon, Apple and Google, more than $2bn a year. Other countries have a similar tax in place, including the UK, France and Italy.

Canadian officials had said they expected to address the issue as part of trade talks with the US.

There were hopes that the relatively warm relationship that newly elected Carney has forged with Trump might help those negotiations.

The president’s latest move casts doubt on a future deal, though Trump has often used social media threats to try to gain leverage in talks or speed up negotiations he sees as stalling.

Last month, for example, he threatened to ramp up tariffs on goods arriving to US shores from the European Union, only to relent a few days later.

Candace Laing, chief executive of the Canadian Chamber of Commerce, which has been critical of the digital services tax, said that “last-minute surprises should be expected” as the deadline for a deal approaches.

“The tone and tenor of talks has improved in recent months, and we hope to see progress continue,” she added.

Canadian Senator Hassan Yussuff, who sits on a Canada-US trade advisory council to Prime Minister Carney, told the Globe and Mail that he believes Trump is trying to gain “leverage” in the talks by putting pressure on Canada.

“I think we don’t react to it,” Yussuff said.

Meanwhile, some in Canada’s business community have called on Carney to scrap the digital services tax. Goldy Hyder, president of the Business Council of Canada, said on Friday that the tax undermines Canada’s relationship with the US, and it should be lifted “to get trade negotiations back on track”.

At the G7 in mid-June, Trump and Carney had set a 30-day deadline for a trade deal to be reached. It is unclear whether Trump’s latest comments have affected that timeline.

During Trump’s first term, the White House fought hard as many countries began considering taxes on digital services.

But Inu Malak, fellow for trade policy at the Council on Foreign Relations, noted that the issue was left unresolved in the trade deal the US and the UK reached earlier this year, suggesting some flexibility.

She said Trump’s threat seemed like a move to ramp up pressure out of his typical negotiating “playbook – but was also a sign the president had refocused on Canada, which could open the way for a deal.

“It does provide a bit of an opening – maybe not the one that Prime Minister Carney wanted… but it does provide some space for them to hasten those talks,” she said.

The US is Canada’s top trade partner, buying more than $400bn in goods last year under a longstanding free trade agreement.

But Trump hit that trade with a new 25% tariff earlier this year, citing concerns about drug trafficking at the border.

New US tariffs on cars, steel and aluminium have also scrambled relations. Car parts, for example, cross US, Mexican and Canadian borders multiple times before a vehicle is completely assembled and such import taxes threaten supply chains.

Trump later carved out exemptions for some goods in the face of widespread alarm from businesses in both the US and Canada, which has hit back with tariffs of its own on some American products.

Shares in the US fell on Friday after Trump said he was cutting off talks, but later bounced back with the S&P 500 closing at a record high.