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Canada's Deputy Prime Minister and Minister of Finance Chrystia Freeland takes part in a press conference in Ottawa, Canada, on Jan. 29, 2024.
Canada’s threatened tax on tech giants risks trade war
Canadian Finance Minister Chrystia Freeland plans to unveil the federal budget on April 16, a release that will be keenly watched north and south of the border. Big Tech companies, in particular, will be looking for clues about when Canada will implement its long-promised digital services tax.
Justin Trudeau’s cash-strapped Liberal government hopes to raise up to $2.5 billion over five years by imposing a 3% tax on companies like Alphabet, Meta, Uber, Amazon, and Airbnb. First promised in the 2021 budget, the Trudeau government said it would implement the tax on Jan. 1, 2024, retroactive to 2022.
Aside from raising much-needed funds, targeting tech giants has the additional benefit for Trudeau of being popular politically. His government has already whacked Alphabet and Meta with its Online News Act, forcing them to share revenues with Canadian news publishers (Meta responded by removing news links from Facebook in Canada), and its Online Harms bill, which compels social media platforms to regulate harmful content or face punitive fines.
Freeland says the digital tax is a “matter of fairness,” given that tech giants have been booking their profits in low-tax jurisdictions.
A move by OECD countries to implement a global minimum corporate tax rate of 15% has gained traction, but US opposition persuaded a majority to vote for a year-long delay last summer. Freeland said she preferred a multilateral approach but that Canada is prepared to move forward alone.
US trade representative Katherine Tai has warned that the Biden administration considers the tax discriminatory and will retaliate with tariffs.
A letter from Senate Finance Committee chair Ron Wyden (D-Ore.) and Ranking Member Mike Crapo (R-Idaho) in October said that any retaliatory steps would have bipartisan support.
Those threats seem to have registered with Freeland. In her fall economic statement, she removed the Jan. 1 deadline, while introducing legislation that would allow the federal government to implement the tax later. The budget may indicate whether Canada still plans to go it alone and risk Washington’s wrath, or wait for a new multilateral effort.
Crisis at the WTO: Fixing a broken dispute system
The appeals body of the World Trade Organization (WTO) is like the Supreme Court for global trade. But it’s fundamentally broken: it hasn’t been able to hear any cases or issue decisions since 2019.
The US has blocked new appointments of WTO appeals judges under the Obama, Trump and Biden administrations, complaining that the organization’s rules have hurt US jobs and industry while it lets China protect its massive domestic market from foreign competition. Until WTO reform happens, the US says, it will block any new judges from sitting on the appeals bench.
Without a minimum of three appeals judges, the WTO can’t resolve disputes. And that’s a major problem for the world’s only international organization dealing with the rules of trade between nations. But there may be hope in sight.
On GZERO World with Ian Bremmer, WTO Director-General Ngozi Okonjo-Iweala said she is hopeful the dispute settlement impasse will be resolved by the WTO's 13th Ministerial Conference (MC13) in February 2024.
“[The United States] are not the only ones who have problems with the system. Developing countries also find it difficult to access,” Okonjo-Iweala says, “So let’s take all these complaints, reform system, and make it useful for everyone.”
Watch the full interview: World trade at risk without globalization, warns WTO chief Ngozi Okonjo-Iweala
Catch GZERO World with Ian Bremmer every week at gzeromedia.com/gzeroworld or on US public television. Check local listings.
Ottawa, Washington at odds over digital tax plan
The Canadian government has outlined its plans for a digital services tax, which will hit online retailers and social media platforms with a 3% tax on Canadian revenue.
Trouble is, the Liberals’ tax battle with tech titans poses a threat to the carefully laid international plans of their political allies in Washington, according to a Politico report.
The Biden administration is worried that this could change the dynamics in OECD negotiations on a global digital service tax. The OECD is leading talks with more than 130 nations that want a portion of the profits made by US tech companies in their countries to stay within their borders. The US managed to postpone the taxes until at least 2025 but worries that other countries may follow Canada’s lead and move forward unilaterally.
Business groups in Canada and the United States have loudly objected to Canada’s plan, and Washington has threatened to seek redress if Canada proceeds, although it is not clear that the measure would be captured under USMCA, a trade deal between the US, Canada, and Mexico, rules since large Canadian companies would likely also be required to pay.
Treasury Secretary Janet Yellen is reportedly lobbying Canadian Deputy Prime Minister Chrystia Freeland to drop her plans, but Freeland – who played a key role in negotiating the USMCA and has deep connections in Washington – has insisted Canada must proceed. The tax is expected to come into force by January of next year.
Australian businesses forced to adjust as China trade curbs bite
SYDNEY - Outside the small town of Quambatook on the grain-rich land of south-east Australia, Mr Brett Hosking runs a barley and wheat farm that has belonged to his family for about 110 years.
Australia calls for clarity from China over embargo reports
SYDNEY/BEIJING • Australia's Trade Minister yesterday called for greater clarity from China over reports that an embargo could hit a slew of industries by the end of the week and further escalate tensions between the two countries.
China's global ambitions & plummeting relationship with the US
"US/China relations have been plummeting. Pretty much everything is getting worse," Ian Bremmer tells viewers in this week's episode of GZERO World. In this commentary on the current state of play between the two global powerhouses, Bremmer breaks down the chess game that could be leading to a new Cold War: Travel between the two sides is restricted. Trade and tech competition abound. Beijing is consolidating control over Hong Kong and threatening Taiwan, while its internment of Uighurs has grown more severe. Meanwhile, Europe and developing nations alike are left with a very difficult choice.
Trump won't back off TikTok ban; China may react against US tech firms
Ian Bremmer shares his perspective on global politics on this week's World In (More Than) 60 Seconds:
Donald Trump, TikTok, and Microsoft. What's the story?
Well, the story is that this incredibly successful app that teenagers everywhere seem to really love is functionally owned by China, they are based in the Cayman Islands, registered there, but the Chinese government has itself said that TikTok is a Chinese firm. And that means that the United States, which is involved in a technology Cold War with China, has been looking to hit Chinese tech firms and make it much more difficult for them to act in the United States. I remember there was one Chinese firm that was trying to buy Grindr, which is this app where I think, you know, men can meet men for dating and whatnot, and the idea, in Congress especially, saying, "oh, my God, we can't possibly have China having data like that." Well, I mean, same sort of thing.
There is a national security issue, there is a political issue with Trump wanting to beat up on China and everyone, both Dem and Republican, finding that's a popular thing to do. And then there's the issue of reciprocity, that if China is not going to allow Facebook to operate in China, or Wikipedia, or Reddit, then why should the Americans allow TikTok? And other countries like India have already banned TikTok, the fastest growing app ever in India. So, no surprise that the Chinese are going to be forced to have to sell this to the US. But what's interesting is the Chinese government has responded very sharply to this move by the US. And assuming it goes through and I think there's no way that, you know, either it's going to be sold, which I think is more likely, or it's going to be shut down, it is going to go forward. I don't think Trump's going to back off. I think that this is going to lead to the Chinese taking serious steps among remaining US high tech firms in China. Not necessarily tariffs, but non-tariff measures. Some of them would be restricted in terms of what they can and can't do. You could even imagine executives being charged with some kind of illegal activity in China like they've done with a couple of Canadians, a former diplomat, the two Michaels they say, all of which has the potential to make this a much worse relationship. The next few months between the US and China in the run up to the election, very, very dangerous indeed.
Spain's former king is gone. What's happening?
Well, he's the Emeritus King Juan Carlos I and has been quite unpopular in Spain because of both tax fraud and money laundering inquiries. Big issues around his role in facilitating contracts with a high-speed rail that Spain was supposed to be building in Saudi Arabia between Mecca and Medina. There were other issues as well. He left Spain because of all of those problems. The decision to do that was actually facilitated with the existing Spanish government so as not to further damage the royalty in the eyes of the Spanish people. A smart move, a useful move collectively for the stability of the Spanish government. I don't think it's going to have a big impact on the existing coalition, shouldn't fall apart. Nor is it likely to have a lot of impact on the existing head of state.
What's interesting is that the King Emeritus does have immunity for any act conducted while in office. But whether or not some of these occurred after his abdication, I mean, that's something that we'll see as the cases continue. That could lead to making this up much bigger and more salacious story for the Spaniards going forward.
What can the US learn from Israel as back-to-school strategies are planned?
Well, Israel in the early days was seen as one of those that had most effectively hammered down the curve with very low transmission on the back of a very effective lockdown, and massive surveillance, and testing, and contact tracing in Israel. They then opened the schools, in part because there's a view that young people are not as likely to get the disease, they are not frequently vectors for transmission. Remember, we don't know a lot about this disease. Turns out that's probably wrong.
As you've seen, for example, a campground in Georgia and many dozens of campers end up getting the disease. Massive amounts of asymptomatic case transmission, which can put older people in a great deal of danger, those with preexisting conditions. So, what we're finding is that even in a country that's relatively small, with a lot of transparency, with incredible testing, very wealthy, good health care system, that Israel gets explosive cases because they bring the students in. And if they don't have massive social distancing and the kids aren't always wearing masks as they do, for example, in Taiwan, or in Thailand, or in South Korea, then you can get that explosive transmission. And that and the Israeli economy contracting this year, probably 5%-6% is leading to big demonstrations against Prime Minister Netanyahu, which, of course, as well, could lead to more explosive transmission in Israel. So, the United States surely is watching this. It's one of the reasons why you're seeing a lot of American political officials backing away from the idea that we can simply open all the schools if we don't have the conditions in place.
Finally, what is going on with Harry Potter inspired protesters in Thailand?
Well, Thailand actually has done a reasonable job of containing coronavirus, but a horrible impact on their economy, especially because they're so reliant on tourism, which is done for the foreseeable future. There's also been some corruption scandals and, of course, of government, which is functionally suspended democratic elections on the back of a military coup. And after the death of the last king, existing king in Thailand, nowhere near as competent, nowhere near as popular. What's interesting about these protests, aside the fact that they're Harry Potter inspired, so a bunch of people with wands and casting spells and holding photos of Voldemort, which, you know, makes it sound fun, but going after the monarchy is illegal. In fact, it is punishable by up to 15 years in prison. And there's never been a mass protest in Thailand that has directly criticized the monarchy before. Now, the prime minister is saying, let's calm this down, please don't be disruptive. They don't seem to be looking for reasons to arrest people for breaking these laws right now because it could make an unstable situation even worse, but that could also raise the question as to the position that the monarchy plays in Thailand. For so long a stabilizing feature, both economically, socially, and politically in that country. Maybe there are questions around how long it is fit to last.
Quick Take: Cautious COVID optimism, TikTok & China sanctions
Ian Bremmer's Quick Take:
Happy Monday, we are in August, summer, should be taking it a little easier. Coronavirus not taking the stress levels off but hopefully giving people the excuse, if you're not traveling so much, be close with your families, your loved ones and all that. Look, this is not a philosophical conversation, this is a talk about what's happening in the world, a little Quick Take for you.
First of all, you know, I'm getting a little bit more optimistic about the news in the United States right now. Yes, honestly, I am. In part because the caseload is flattening across the country and it's reducing in some of the core states that have seen the greatest explosion in this continuation of the first wave. Yes, the deaths are going up and they should continue to for a couple of weeks because it is a lagging indicator in the United States. But the fact that deaths are going up does not say anything about what's coming in the next few weeks. That tells you what's happened in the last couple of weeks.
What is likely coming is that even in the red states where governors were most opposing wearing masks in a mandatory way and shutting down the economy, they are seeing that they have explosive case transmission and they're changing their behavior. And mask wearing and social distancing in the United States is less about whether you're Republican or Democrat, it's more about is the disease near you and do you feel threatened by it? And as we see it spreading into rural areas and into red states, we're also seeing mask wearing and social distancing going up in those places.
It's not true everywhere and even some governments that are particularly retrograde, Alabama looks really bad, for example, in that regard. But generally, across the country, you're seeing a response to all of those measures. You're also seeing that improved treatment, the fact that high-flow oxygen actually works better than ventilators in some cases, the fact that plasma treatment is becoming more used and more and more widely understood. I mean, all of these things, plus increased testing numbers that the president keeps talking about, is making it easier for the United States to respond effectively to this outbreak. And that means even with much larger caseload that we know about, you're not getting as many hospitalizations, they aren't lasting as long, not as many people are dying. All of that implies to me that where we are going to be in two months' time doesn't feel as bad as where we are right now. Even though the total numbers of deaths, of course, are going up and the best estimates I've seen so far, about 230,000 by Election Day.
There are more explosive cases that are happening in Japan, in France, in Spain, in the United Kingdom, and in Australia, but let's keep in mind that that is from a much, much lower base and the government response, also learning, is becoming quicker and more effective. And the popular response, better educated around the stuff, also effective. So, the impact that's going to have should be smaller than what we saw in the first wave. So, I mean, even without working vaccines, the learning that's going on around this disease, both the learning in terms of science and also learning in terms of governments and people should actually make us get better at handling it. And that makes me more optimistic. When we were talking in March and April and the explosions, we saw first in Italy and the massive mistakes made around hospitals there, which got overwhelmed. In the United States, in the New York City metro area, the massive mistakes that were made around assisted living facilities and bringing people that had cases there and transmission exploded. We're not doing that anymore. So, we're learning in a lot of different ways. The doctors are learning. Governments are learning at the national and local level, and the people are learning. As all of that happens, we're going to get better very quickly responding to this virus. And so even though you're going to see lots and lots of people still get sick, you're not going to see as many serious hospitalizations and not many will die.
The one thing that bothered me the most since we last chatted, are these studies that show that over 50% of people that have gotten the disease, even if they were asymptomatic, have some lasting heart damage because the heart is working a lot harder to respond to the body's needs when the virus comes. It's only one study but the numbers are significant, it's well over a thousand people in it, and it was well reputed, the scientists involved. So, the longer term implications of all of the people that are getting this virus, many of whom don't know it, in terms of whether or not our life expectancies will be of the quality and the length that we want, that actually does really sort of bum me out. And I'm hoping that we learn a lot more about that in the near future.
So, you know, I mean, you think about the fact that, you know, we go into our cars and we've got thousands of sensors and we know exactly when we need brake fluid, we know exactly when we need gas, we know exactly, you know, what kind of maintenance we need, real time, and we wouldn't buy a car otherwise. And you look at our bodies and we have nowhere near that amount of tracking and tracing. And frankly, it's not even because the technology isn't there, it's just because we haven't felt comfortable with it and we also don't really want companies or governments have access to that data. But in this environment where suddenly you are bringing this new disease into a meaningful piece of the global population, and unchecked, it hits everyone, right? You look at India, Mumbai, and some 50% of people tested in the biggest slum, over a million people, very dense population, already have had the disease. Over half. So, herd immunity actually of some form is proven to come there. I mean, the numbers are just, within a year, the numbers are going to be astonishing to think about. And, you know, pretty much everyone is going to have people close to them that are exposed to it. We are going to want to know, long-term what that means for our health, long-term what that means for our ability to live the lives that we had been, you know, personally, emotionally and financially planning for? So, that is a worry.
US-China, the most recent things. First, the TikTok ban, so many people in the media saying this is because Trump is angry at the kids who embarrassed him in Tulsa, he's angry at this comedian that makes all of these really funny TikToks of him speaking. No. I mean, I'm sure he is angry about it, but this has nothing to do with that. It's almost certain that Microsoft or another company will end up picking up TikTok and all those people can still make fun of Trump if they want to on whatever that new app is. No, this is going after China. And let's keep in mind that this is a China where if you want to use Amazon, you want to use Facebook, you want to use Google, tough. You're stuck. You can't do it. You know why? Because they have their own and they won't let the American companies in. And China is the largest data market in the world. So, if they refuse to allow the biggest American firms, the biggest in the world, to participate there, even if the Chinese weren't stealing data for their governmental purposes, even if they had rule of law on intellectual property, why would you let them operate those apps in your market? You would want to have an agreement where you have reciprocity, where if they want to operate the US and you get to operate in China. Until that happens, I'm not very sympathetic to the people saying the US shouldn't be doing anything. And by the way, most American allies are on board with the US on that front.
Also, interesting to see, probably the most significant sanctions so far by the US against China, it's against the Xinjiang Production and Construction Corps. It is the most important central government sort of corporate entity in Xinjiang, which is the north-west interior part of China, where the Uighurs, the ethnic minority Muslim, have had over a million forced into camps, there has been forced sterilizations, forced cultural integration. It is a horrible, horrible story. And the US is significantly upping the impact in terms of sanctions. It's not clear because there aren't a lot of companies that do direct business in the West with that Xinjiang Production Construction Corp, but there are an enormous amount of firms that do trade, that have inputs that originally come from that company. And that produces much of China's cotton, for example, lots of other things as well. So, a lot of people could be watching very carefully to see what it means and just how broadly those US sanctions are going to apply, whether it's direct or indirect engagement with that entity. If it's indirect, then this is going to be a very significant hit to a lot of Chinese companies and Western companies that really matter, they will have to change business practices and the Chinese will respond and escalate.
So, that one is worth watching. TikTok is done, someone else will buy it. And that is your Quick Take.