Robert C. O’Brien: Canada’s misguided tax on American tech companies hurts both our countries while helping China

American technology leadership is the envy of the world. The technology sector is not without its faults, but it has brought trillions in economic benefits to the United States, created millions of jobs, and ensured that our defence industrial base stays ahead of China at a critical time. Unfortunately, this also has made U.S. tech companies a prime target for aggressive foreign regulations and protectionist policies designed to capture the profits of American companies, impose undue operating costs, or drive them out of foreign markets entirely—all to the benefit of China and its partners, Russia and Iran. The latest example of these unfair trade practices does not come from a malign foreign adversary but astonishingly comes from Canada—America’s closest trading partner and NATO ally.

In June 2024, Canada’s digital services tax (DST) entered into force. The DST imposes a 3 percent levy on revenue from digital services, primarily targeting U.S. tech giants like Google, Amazon, and Facebook. This tax, retroactive to January 1, 2022, unfairly burdens American companies, disrupting their ability to invest in innovation and job creation. By siphoning an estimated $3.7 billion in revenue from U.S. firms, Canada undermines American tech leadership and sets a troubling precedent for other countries. This move weakens the U.S. tech sector globally, reducing funds that would otherwise support research and development in critical areas such as AI and quantum computing. Of course, this action will directly affect economic growth in the U.S.

In an unprecedented way, Canada has launched a protectionist trade agenda targeting the U.S. Despite numerous overtures from Washington and bipartisan warnings from Congress that retaliatory measures by the U.S. would be warranted, Prime Minister Trudeau announced the DST would go into effect in June.

Unfortunately, the DST is not the only new Canadian policy targeting American companies. This year, Canada’s broadcast regulator announced plans to force digital streaming services to give 5 percent of their Canadian sales to fund Canadian broadcast content.

Importantly, allies who seek to constrain the U.S. economically must be reminded that our global technology leadership, including in the digital services market, is a national security issue for the U.S. The Communist Party of China is working every day to undermine American tech leadership. Through initiatives like Made in China 2025, Beijing is striving to dislodge the U.S. as the preeminent leader in technology and dominate global markets, diverting profits, investments, and data to CCP control. Canada, a NATO member at the back of the pack when it comes to spending on its own defence as a percentage of GDP, should be very concerned about damaging the ability of its security guarantor, America, to compete with China.

America must rally our allies around our common preeminent national security challenge, which is China’s technological predations, and promote our mutually beneficial interests. Ensuring American companies, the ability to fairly compete in allied countries is a critical part of this strategy. We can effectively mitigate China’s market infiltrations in the U.S. and Canada alike.

During the Trump administration, our foreign counterparts understood that America First was the guiding principle of government action. When articulated most effectively, allies and partners were eager to cooperate with the U.S. because America First did not mean America alone. It meant a stronger free world seeking peace through strength to protect our way of life.

America’s leadership in innovation and technology is an indispensable component to the economic and national security of the U.S. and allies like Canada. It is critical the U.S. stand united with its allies to find reasonable trade terms that are workable economically but also protect against CCP efforts to undermine and destabilize the West technologically. While Canada is an important ally and partner, its attempts to economically corner the U.S. are concerning and must be addressed.

Economic security is national security, and it would be diplomatic malpractice to divorce the two. Much of America’s geopolitical strength derives from our alliances and partnerships. Now is the time for a candid conversation between Ottawa and Washington on the threats both our countries face, and the role American tech leadership plays in securing not only our own economy but Canada’s as well.