Foreign governments continue to target U.S. companies with digital services taxes (DSTs). France tried them in 2019. Canada tried in 2021, despite the objections of its closest partner. Austria, India, Italy, Spain, Turkey, and the United Kingdom have all adopted their own versions. Now, the United States has answered each with a Section 301 investigation and the threat of tariffs.
The pattern is clear: a government facing a fiscal deficit imposes a tax that (on paper) applies to large digital firms, but in practice falls almost exclusively on a small number of American companies. The U.S. government cries foul then threatens trade restrictions; the taxing government calls it “fairness.” The countries agree to a truce, but then a few years later, the cycle starts again. This is not a good way to run the world economy. It is costly, chaotic, and invites exactly the kind of ad hoc, impoverishing retaliation that trade rules and agreements exist to prevent.
The fix is not complicated. Trade agreements should include a standing clause committing signatories to not adopt taxes that single out digital and tech firms for tax treatment no other sector receives. It should explicitly prohibit such taxes based on revenue thresholds tuned to hit a handful of large, and mostly American, companies. Call it what it is: an anti-DST clause. It should be a standard part of future agreements, along with prohibitions on other discriminatory measures.
DSTs are targeted at gross revenue, not profit, and tied to where users are located rather than where a firm has a taxable presence, with thresholds set high enough that only a small number of large multinationals ever pay. That is not a broad-based consumption tax. It is an instrument built to reach across a border and tax firms a country cannot otherwise tax under existing treaty law, because those firms have no permanent establishment there. While most governments have corporate taxation, they should not invent a tax category that targets a single category of firm.
An anti-DST clause would only prevent singling out digital services or digital firms; it would not change the ability of governments to impose normal corporate income taxes, value-added taxes, or other neutral tax measures. The objective is not to constrain fiscal policy but to prevent governments from using the tax code to discriminate against a small group of foreign firms through a measure crafted for that purpose.
Trade agreements are the appropriate place to resolve this issue because the problem is one of market access. Countries have long retained wide latitude over how much revenue they raise and how they structure their tax systems, but they have accepted constraints when taxes become disguised barriers to trade or discriminate against foreign firms. DSTs fall into that category. The dispute is not over the appropriate level of corporate taxation or the allocation of taxing rights under international tax law. It is over whether governments may create a tax instrument whose commercial effect is to disadvantage foreign suppliers operating in their market.
That is exactly the type of recurring conflict trade agreements exist to prevent. Trade negotiators should put the commitment in the agreement text together with the digital trade chapters that bar forced data localization and require nondiscriminatory treatment of digital products. A good example is the 2026 U.S.-Ecuador trade agreement, which bars taxes that discriminate against U.S. companies in law or in fact: “Ecuador shall not impose DSTs, or similar taxes, that discriminate against U.S. companies in law or in fact.” Other agreements have already begun moving this way; the Korea Strategic Trade and Investment Deal reportedly includes a commitment that U.S. firms will not face discrimination in digital services policy, which is the anti-DST clause under a different label. That precedent should become the rule, not the exception.
Trade agreements exist to take recurring disputes out of the realm of improvisation. Digital taxation is now a recurring dispute. It belongs in the text.