Trump terminates US-Canada negotiations! DST becomes a flashpoint, US Treasury Secretary: A new round of tariff measures will be issued soon

Since U.S. Commerce Secretary Howard Lutnick stated on 6/27 that he will launch a new round of negotiations with 10 major trading partners within two weeks, the negotiations seem to have started poorly. On 6/28, U.S. President Donald Trump announced an immediate halt to all negotiations with Canada, due to Canada's plan to impose a digital services tax (DST) on technology companies and refusal to delay the tax. The U.S. Treasury Secretary stated on the same day that new tariff measures against Canada would be announced within a week, causing volatility in the Canadian stock market. Trump stated on Truth Social: "Canada not only imposes a 400% tariff on our dairy products but also wants to impose a digital services tax on our technology companies. Immediately stop all trade negotiations with Canada." Trump had just met with Canadian Prime Minister Mark Carney at the G7 Summit last week and requested that Carney delay the DST implementation by 30 days, but was refused. U.S. Treasury Secretary Scott Bessent stated on the same day: "The United States is prepared to launch a Section 301 investigation and will impose additional import taxes on Canada, initiating a new round of tariff measures." The digital services tax (DST) is a tax levied on the revenue generated by multinational digital companies providing digital services in specific countries or regions. Because traditional tax systems are based on "physical locations" and find it difficult to effectively tax digital technology companies (Google, Apple, Facebook, Amazon), this tax was established to ensure these companies "pay taxes where they earn money." Although Canada's DST was legislatively approved a year ago, companies have not yet complied. The Canadian government plans to officially impose the tax from 7/1. According to reports, technology companies with digital revenue exceeding 20 million Canadian dollars (approximately 14.6 million USD) in Canada will be subject to a 3% tax. Uber has expressed dissatisfaction with the DST, and Amazon has issued a statement calling it a "discriminatory" tax that ultimately hurts Canadian consumers. After Trump's pressure, the Canadian dollar-to-U.S. dollar exchange rate dropped by over 0.5% that day, with partial recovery but not returning to the opening level. The Toronto S&P/TSX Composite Index closed at 26,692.32 points, down 59.58 points, a decline of about 0.22%. Canadian business groups and politicians have begun calling on Prime Minister Carney to cancel the tax to avoid retaliatory tariffs. Ontario Premier Douglas Robert Ford again requested that the Canadian government abandon the DST. The Canadian Innovators Association directly stated that the tax would be passed on to advertisers and consumers, with tech giants barely affected. Carney did not respond to Trump's post but stated that he would prioritize "national interests" and continue negotiations. The Canadian Finance Minister has not yet responded whether the tax will be adjusted but has hinted that the DST might become part of U.S.-Canada trade negotiations. Investors should continue to pay attention to the new tariff content the U.S. may impose on Canada.

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TNB Case: An Unwritten Institutional Conflict

TNB was created by former New York Federal Reserve senior executive James McAndrews, emphasizing "only accepting deposits, not lending, and not taking credit risks". This narrow bank has been applying for the Fed's main account since 2017, ultimately losing a six-year lawsuit and being formally rejected in 2023.

The Fed's reason for rejection is not difficult to understand: allowing TNB to access reserves and enjoy risk-free returns would create an institutional arbitrage opportunity for the traditional banking system. This would attract massive funds from general banks to TNB's "no lending, zero risk" model, causing market distortion and financial instability.

This is not a rejection of a bank, but a crackdown on a capital model.

Circle Operation: Seemingly Compliant, Actually a High-Level Option Game

Unlike TNB's direct challenge, Circle adopted a "institutional infiltration" strategy. They collaborated with BlackRock to establish a dedicated government money market fund (Reserve Fund), attempting to qualify for the Fed's overnight reverse repurchase agreement (RRP). Although ultimately rejected, the intention and institutional value embedded in this operation are thought-provoking.

(New York Fed Changes RRP Counterparty Policy, Circle's Reverse Repurchase Dream Shattered)

Through an annual management fee of only 0.17%, Circle obtained the following implicit capital bonuses:

1. BlackRock's asset management and brand endorsement

2. Obtaining an institutional ticket to enter the Fed's reverse repurchase market, satisfying RRP basic conditions through SEC Rule 2a-7, and striving to access Fed policy tools

The structure of this transaction is similar to a "zero-cost, deep out-of-the-money institutional option": failure does not harm the main body, but success could open possibilities of connecting with the Fed's balance sheet, further consolidating USDC's leading position in US dollar stablecoins.

Will the Valuation Basis of Stablecoins Shift from Earnings to Institutions?

From USDC's strategy, we can see that the stablecoin market competition is evolving from "interest rate spreads" to "institutional access rights". This is not merely financial innovation, but an institutional game surrounding Fed policy tools and capital market design. As Circle and TNB touch the Fed's boundaries in different ways, the Fed's response strategy will also establish a paradigm reference for global central banks and the stablecoin market.

In the future, stablecoins may no longer just be pegged to the US dollar, but the distance from the Fed's "institutional option" may become the core of valuation.