The Liberal Government Is Weakening Canada’s Competitive Position & Straining Relations With The U.S. As They Push Ahead With New Digital Tax

Trudeau and the Liberals evidently believe they’ve found a political winner in picking fights with U.S. tech companies, but Canadians will lose out in the long-term.

At this point, we must conclude that the Liberals have internal polling numbers indicating that picking a fight with U.S. tech companies is a political winner for them.

While nationwide polls indicate the opposite, fighting against ‘American tech giants’ is likely popular in Quebec, where the media/artistic community is extremely in favour of government intervention and restrictions in order to protect a specific vision of the cultural industry.

This also feeds into the Liberal re-election strategy. With Trudeau’s poll numbers remaining low and the Conservatives maintaining a decent national lead, the Liberal path to staying in power is a narrow one, relying on holding onto their Quebec base – and possibly expanding it based on ‘tech companies’ battle – while winning just enough in Ontario and the Maritimes to deny the CPC a majority, and then making a deal with the NDP.

You’ve likely witnessed the growing effort to normalize the idea of the Liberals staying in power even if they win fewer seats than the Conservatives, an indication that the Liberals recognize they their only path to remaining in office is an ugly one.

Short-term thinking

While short-term thinking is a staple of politics, the Liberals are playing a risky game here, because their ‘fight’ with ‘big tech’ will have significant long-term impacts on the Canadian economy.

As noted in previous columns, countries that fail to embrace technology will be surpassed by those that seize the opportunities technology creates. The more we become dependent on government intervention, and the more we allow the government to close us off from the social networks and AI advancements being used in other parts of the world, the more we will remain mired in stagnation and the more our already-poor competitive position will erode.

But the Liberals seem completely unconcerned by this. And they are doubling-down on their ‘anti big-tech’ campaign.

America says they’ll retaliate against digital tax

143 countries are in negotiations regarding some sort of organized tax on digital services. Those talks have been delayed for a year.

Yet – as noted by Anja Karadeglija in the National Post Canada is one of just five countries that weren’t willing to agree to the delay. And we are in some pretty horrendous company:

“Canada has said its DST would only come into effect if a multilateral tax agreed to by OECD countries isn’t in place by 2024. The OECD approach would implement a global minimum corporate tax rate of 15 per cent.

But last week, OECD countries agreed to delay any plans for their own unilateral taxes by another year. Only Canada, Belarus, Pakistan, Russia and Sri Lanka — of 143 countries party to the deal — weren’t supportive of the one-year delay, according to Reuters.”

Unsurprisingly – since such a tax would largely be levied on American companies – the United States Ambassador to Canada David Cohen says the U.S. would retaliate:

“Cohen said Tai’s “statement was direct and clear and strong that if Canada decides to proceed alone, you leave the United States with no choice but to take retaliatory measures in the trade context, potentially in the digital trade context, in order to respond to that.””

This would be – to put it mildly – less than ideal.

The last thing Canada can afford is to fall further behind in terms of competitiveness and productivity. And, given the ‘friendshoring’ trend as democracies seek to reduce their reliance on regimes like Russia and China in terms of trade, we need deeper economic integration with allies like the United States, not heightened tensions.

Sadly, it seems the Liberal government is more than willing to sacrifice Canada’s economic interests in the desperate pursuit of votes.

Spencer Fernando

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