Trade relations between the United States and Canada have been thrown into uncertainty after US President Donald Trump abruptly announced the end of ongoing negotiations, citing Canada's tax on digital services as the key reason.

The statement, issued through social media, came as the two countries were attempting to finalise a new trade agreement by mid-July.

Trump said his administration would impose fresh tariffs on Canadian goods in response to the 3% digital services tax, which he termed an “egregious tax” targeting American technology companies.

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

The announcement threatens to escalate an already tense economic standoff between the two neighbours, who had previously exchanged tariffs earlier this year after Trump warned he might use “economic force” to pressure Canada. On Friday, he reiterated that new import taxes would be introduced within a week.

Canadian Prime Minister Mark Carney responded briefly to reporters, signalling that his government remained open to dialogue. “We will continue to conduct these complex negotiations in the best interest of Canadians,” he said.

Canada’s digital services tax, passed into law last year, requires large tech companies to begin making payments starting Monday.

It has remained a point of contention with the US, where American firms like Apple, Amazon and Google are expected to bear the brunt of the tax—estimated by industry groups to cost over $2 billion annually.

Despite previous optimism that Carney’s warmer ties with Trump might ease the negotiation process, the president’s move has raised fresh doubts about the possibility of a deal.

Trump has previously made similar social media threats to force progress in trade discussions, such as a recent tariff warning aimed at the European Union, which he later withdrew.

Candace Laing, chief executive of the Canadian Chamber of Commerce, said the development was disappointing but not entirely surprising.

“Last-minute surprises should be expected,” she said. “The tone and tenor of talks has improved in recent months, and we hope to see progress continue.”

Inu Malak, a trade policy fellow at the Council on Foreign Relations, noted that the digital tax issue had been left unresolved in earlier US trade deals.

She suggested Trump’s latest move might be intended to speed up progress rather than halt it completely.

“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 remains Canada’s largest trading partner, having purchased more than $400 billion in goods last year under a longstanding free trade framework.

However, recent US tariffs on steel, aluminium, and car parts have strained cross-border business operations, especially in industries where supply chains are tightly integrated.

Earlier this year, Trump imposed a 25% tariff citing border-related drug trafficking, before later granting exemptions to certain goods following strong criticism from business communities on both sides of the border.

In retaliation, Canada introduced its own tariffs on select American imports.

While US stocks dipped shortly after Trump’s announcement on Friday, markets later recovered, with the S&P 500 closing at a record high.