Politico | 4 November 2025
The tech taxes at the heart of Trump’s tariff war
By AARON MAK
There’s a lot that feels new and disruptive about President Donald Trump’s pugnacious tactics for bending global trade to his will — his zealous wielding of tarriffs, his kitchen sink approach to negotiations. His trade policy has already hit the Supreme Court, which will hear arguments tomorrow on whether Trump’s expansive use of tariffs passes Constitutional muster.
Exhibit one of the Trump era’s peculiarities has been how the administration is pushing Big Tech’s interests abroad, in particular by siding aggressively with the industry against foreign digital services taxes.
These are taxes levied by other countries on revenues that online companies make from social media advertising, digital marketplaces, data sales and other activities in the digital economy. To the countries with DSTs, they’re an obvious policy move: The digital economy is an enormous business, and they’ve struggled for other ways to impose income taxes on its biggest companies.
But Big Tech reviles DSTs, arguing that the taxes make it difficult to do business abroad and penalize success. They also say DSTs unfairly target American companies, since the taxes are designed to apply to the biggest and most profitable digital businesses. (Notably, Trump threatened to inflict tariffs on countries with DSTs shortly after Meta CEO Mark Zuckerberg brought up the issue in a White House meeting.)
Using American trade clout, U.S. trade officials have managed to push Canada, Malaysia and Cambodia to swear off of DSTs.
There’s a lot that appears strange about the scenario. Foreign countries want to take a cut of the proceeds from digital services provided by American companies, and passed their own laws to do so... and now the U.S. is using trade negotiations to pressure those governments into rolling them back.
But is it so unusual? These taxes, and the U.S.’s current campaign against them, aren’t totally unprecedented. There’s an argument that this is more of an acceleration of trends in the history of trade policy, rather than a fundamentally new landscape. And in a broad sense, the disputes offer a window into how deeply embedded digital platforms have become in global markets, how important the companies behind them are to the international balance of power — and how much may need to change to reflect that importance.
“Countries are really integrated with the digital economy, whether they like it or not,” said Gary Hufbauer, who worked in the Treasury under Presidents Carter and Ford on international economic policy. “That raised a lot of these kinds of issues.”
There’s one big standard in global trade that DSTs violate: The longheld agreement not to tax services provided by companies in another country. It’s usually the country where the companies are located that tax them. So, for example, IT support companies generally don’t have to pay taxes for providing those services to customers abroad. As my colleague Daniella Cheslow reported for DFD, Trump has turned this standard into a nationalistic objection to DSTs, arguing that they enable “foreign governments to appropriate America’s tax base for their own benefit.”
Countries do, however, tax goods produced abroad — that’s what a tariff is. But according to Hufbauer, there isn’t a solid principle behind why the international trade community treats goods as distinct from services. “Ideologically, I don’t think it is such a big difference,” he told DFD. “Conceptually [...] it’s not a big leap.”
To take a simplified example, the U.S. has long imposed fairly high tariffs on cheeses commonly produced in Europe. In a sense, you could argue that the U.S. is appropriating money from foreign cheesemakers, similar to how digital taxes capture revenue from foreign tech firms.
American tech companies obviously account for a much bigger part of the global economy than do cheese exporters, and the big ones tend to be singled out to a greater degree by DSTs. The seamless nature of digital services is tying countries much closer together, economically and otherwise, which makes these hugely popular platforms extremely profitable abroad. Countries see that a huge chunk of economic activity hasn’t been fully subject to their taxes, and they’re deciding that this should change.
This figures into how the administration has been widening the scope of trade talks. Now, trade talks include domestic taxes and even online speech laws. That might seem like the bully tactics of a massive market — but actually, that’s not so new either. The U.S. has long tried to use trade policy as leverage to get foreign leaders to reform their approaches to human rights, the environment and labor.
According to economist Sean Bray of the Tax Foundation, what’s different now is that the U.S. is applying this all-of-the-above strategy more frequently, and to many more issues. Plus, the phenomenon might be a lot more obvious now given how public such negotiations have become. “It’s not just the few negotiators in the room with the door locked at the [Organisation for Economic Co-operation and Development] where these things are being discussed,” he told DFD. “It’s out on X, it’s out on Truth Social, it’s on Fox News or MSNBC.”
Roping Silicon Valley into trade negotiations in particular is an understandable move given how much the U.S. has staked its geopolitical fortunes on technology, especially as its rivalry with China continues to reach a boiling point.
The fact that DSTs mostly only apply to American firms could arguably put them at a disadvantage with Chinese companies, though that’s just one piece of this larger power struggle. “It would be very unfair if Europe was going to tax U.S. digital firms one way, but tax Chinese or Indian firms a different way,” said Bray. “The goal is to ultimately protect U.S. sovereignty on one hand, and also make sure that U.S. firms can compete on an equal playing field abroad.”
In an interconnected global economy, a lot of things matter more to a country’s standing — including digital services and tax policy — and what might have once been considered narrow, technical issues become increasingly intertwined with the larger political calculus.
