Trump threatens tariffs over digital tax, India among nations at risk

Digital services taxes (DSTs), once seen as a narrow policy tool to capture revenue from multinational tech giants, have re-emerged as a flashpoint in global trade disputes. On August 26, 2025, U.S. President Donald Trump warned that countries pursuing such taxes risk not only tariffs but also restrictions on critical American exports — signaling a more aggressive U.S. approach in an already contentious debate.

What are digital services taxes?

DSTs are revenue-based taxes, typically ranging from 1.5 to 6 percent, applied to the income digital companies earn from users in a specific country. They usually cover online advertising, commissions on digital marketplaces, and revenue from selling user data. Governments argue these levies plug gaps that let tech companies earn billions in local markets while reporting profits abroad.

The United States has opposed DSTs from the outset, insisting they disproportionately impact American firms such as Google, Amazon, Facebook, and Apple. Washington and industry groups argue DSTs amount to discriminatory taxation and risk double-charging companies until the Organisation for Economic Co-operation and Development (OECD) finalises a multilateral tax deal.

Where have DSTs been introduced?

Over the past decade, several countries have implemented or debated digital taxes. In Europe, the United Kingdom enforces a 2 percent levy, while France, Italy, Spain, and Austria have enacted their own versions. Turkey and India also tax digital services, with India’s “equalisation levy” targeting online ads and platform transactions.

Elsewhere, nations including Brazil and South Korea have weighed similar policies. Canada, however, abandoned its planned DST in June 2025 following U.S. pressure — a reminder of how Washington’s economic leverage can shape global tax policy.

Why Washington is escalating

Successive U.S. administrations have treated DSTs as an attack on American firms. Both Trump and Biden previously launched Section 301 trade investigations into these taxes, concluding they unfairly singled out U.S. companies. Although tariffs were drafted in response, they were suspended while OECD negotiations advanced.

Trump’s latest remarks suggest a new phase. By threatening not only tariffs but also export controls on sensitive U.S. technologies, Washington is broadening the dispute beyond taxation into trade and security. Export restrictions would mark one of the toughest tools yet deployed in this ongoing clash.

Who faces the greatest risk?

Countries most exposed to retaliation include:

• The United Kingdom, which maintains its 2 percent DST and was cited in reports on Trump’s warning
• France, Italy, Spain, and Austria, whose DSTs have already been subject to U.S. trade scrutiny
• Turkey and India, which continue to enforce their own levies
• Brazil and South Korea, both of which have discussed digital taxation and are on Washington’s radar

What comes next?

The trajectory of DSTs is closely tied to the OECD’s two-pillar tax reform, which seeks to redistribute taxing rights and set a global minimum tax rate. While some governments view their DSTs as temporary stopgaps until the OECD deal is implemented, others see them as bargaining chips in international negotiations.

For the U.S., unilateral digital taxes remain unacceptable. Canada’s retreat highlights Washington’s ability to shift policy through threats. The bigger question is whether European powers or India will resist or fold in the face of potential tariffs and export restrictions. With Trump signaling a readiness to weaponize trade tools against allies, the global tax standoff could soon escalate into a wider economic confrontation.