Canada and the United States are locked in an online battle that could grow into economic war.
Foreign streaming platforms are fighting back in Federal Court over being forced to pay about $200-million a year to support Canada’s broadcast sector. But that tax could represent the tip of the iceberg as Canada steps ahead with a digital-service levy that puts Ottawa at odds with tech giants, the U.S. government and economic allies around the world.
In the news
- Canada approves Glencore PLC’s acquisition of Teck Resources with a restrictive asterisk
- TD’s chief compliance officer departs as bank continues work on anti-money-laundering controls
- U.S. earnings season to test hopes for broader stocks rally
Up top
France’s election results leave markets in limbo
Markets face uncertainty after France’s snap parliamentary election delivered a victory to a left-wing alliance and a surprising blow to the country’s far right, but no clear majority winner on Sunday. The result could mean months of political and economic gridlock.
The leftist New Popular Front was forecast to win the most seats, followed by President Emmanuel Macron’s centrist Ensemble party, with both tactically withdrawing candidates to thwart the rise of the right in elections. Though the far-right National Rally comfortably won in the first round of voting, it was relegated to third place in the end.
Markets in France have lagged other global equity benchmarks since Macron called the election in early June. With the country grappling with a rising debt burden and weakening growth, it’s unclear how Macron will find common ground with the leftist coalition, which has opposed his pro-business reforms and demands a higher minimum wage and price caps on essential food items and energy. - Jason Kirby
In focus
Canada’s gamble on taxing big tech
"Press down on icon and hold until it starts to pay your country revenue."DENIS CHARLET/AFP/Getty Images
The Digital Services Act: On June 28, the federal government pressed play on a new tax on foreign tech giants such as Apple and Amazon – even as 138 of Canada’s allies in the Organization for Economic Co-operation and Development agreed to hold off applying the levy for at least another year under a deal backed by the United States.
The tax imposes a 3-per-cent levy on Canadian revenue from digital services exceeding $20-million that is earned by companies with at least $1.1-billion in global revenue. This would include revenue from search engines, social-media platforms and online marketplaces.
The reward: Ottawa is expecting the tax, first featured in the 2021 budget, would eventually amount to generate revenue of about $1-billion a year.
The risk: Even though the tax applies to Canadian companies that meet the threshold, U.S.-based juggernauts with online marketplaces such as Walmart and Amazon have argued it contravenes Ottawa’s obligations under the U.S.-Mexico-Canada Agreement trade deal.
And they have the ear of the U.S. government: The U.S. ambassador to Canada has said Washington would have “no choice but to take retaliatory measures,” and a trade representative said last week that the government will do what’s necessary to back Canada down.
While Canada is counting on $1-billion a year, retaliatory tariffs could prove far more costly, analysts and business groups are warning.
The U.S. Chamber of Commerce and the American Chamber of Commerce in Canada issued a statement opposing the tax, arguing it would “disproportionately impact U.S. companies, and potentially violate trade agreements including the USMCA and World Trade Organization obligations.
“At this very sensitive time in the Canada–U.S. trade relationship, we urge the government of Canada to reconsider this unilateral and discriminatory new levy,” the organization said in a statement.
The road to the White House: Odds are good we’ll see more fireworks long after the extended long weekend in the United States. And as the presidential election kicks into high gear, it’s unlikely that major trade groups representing the tech giants will get any quieter.
Goldy Hyder, president and chief executive officer of the Business Council of Canada, wrote last year that the imposition of the tax would come during a particularly intense period: “As candidates for office seek to define themselves on politically sensitive issues such as trade, an ill-timed dispute can polarize the debate,” and lead to campaign promises that could threaten important trade agreements for Canada.
▶️ More Like This: The Online Services Tax
{Bill C-11 is a gripping courtroom drama that follows one regulator’s attempt to make foreign streaming platforms pay about $200-million a year to support Canadian art. This story is: Thrilling, dark, mysterious, scary, suspenseful, taxing.}
Charted
Is Air Canada landing or lifting off?
Air Canada’s beaten-up share price is a reflection of a few stiff challenges, David Berman writes. “For starters, the labour picture is unsettled. The airline’s negotiations with the union representing its 5,000 pilots have been dragging on for over a year, and the impasse has raised concerns about a potential strike,” Berman writes. “But with inflation subsiding and the Bank of Canada starting to ease up on its key interest rate, perhaps the gloom encompassing Air Canada shares is about to fade.”
The outlook
On our radar and reading list
Earnings: U.S. banks headline the week on Friday: Wells Fargo, JP Morgan Chase & Co., and Citigroup. Other reports include Postmedia Network on July 10; Cogeco and Richelieu Hardware Ltd. on July 11.
Economics: Highlights include testimony from U.S. Fed Chair Powell to the House financial services committee on July 10; U.S. consumer prices and China trade surplus on July 11; Canada existing homes sales and MLS home price index on July 12.
Extra life: Leaders of the male-dominated longevity movement are pushing “biohacking” to followers willing to spend thousands to extend their lives.
Exiting the country: How a trend of companies staying private for longer is hurting Canada’s productivity.
Markets this morning
Global markets were cautious as the prospect of political deadlock in France took the shine off optimism about an early U.S. interest rate cut. Wall Street and TSX futures were little changed.
Overseas, the pan-European STOXX 600 was last up 0.3 per cent in morning trading. Britain’s FTSE 100 rose 0.33 per cent, Germany’s DAX gained 0.32 per cent and France’s CAC 40 added 0.15 per cent.
In Asia, Japan’s Nikkei closed 0.32 per cent lower at 40,780.70, while Hong Kong’s Hang Seng dropped 1.55 per cent to 17,524.06.
The Canadian dollar traded at 73.31 U.S. cents.