Trump has long been critical of Canada’s steep dairy tariffs, expressing his frustration repeatedly.
Recently, Canada’s Senate passed a new law aimed at protecting dairy supply management from being altered in future trade deals.
This legislative move seems intentional. With plans to renegotiate the US-Mexico-Canada Agreement next summer, Canada hopes to shield itself from Trump’s tariffs. The U.S. is demanding more from Canada, particularly concerning dairy tariff allocations.
The new Canadian law, however, removes these allocations as a bargaining chip. This really miffs the U.S. and other trading partners. Critics also argue that such supply management isn’t in Canada’s best national interest.
There’s been extensive discussion about supply management, a system in place since the 1970s that sets production quotas, minimum prices, and sudden tariffs on dairy products.
Proponents claim it stabilizes prices and farm incomes, while detractors argue it ultimately raises costs for Canadians and stifles innovation in the agricultural sector, leading to trade tensions—something that predated Trump.
There seems to be a consensus on one point: supply management is a contentious issue in Canadian politics.
The system primarily benefits dairy farmers in Quebec and Ontario. Political parties hesitate to tackle this issue, given its significance in federal elections.
However, Trump’s tariffs have created a political environment where Canadian leaders might feel pressured to reform supply management. With significant uncertainties in trade policy, the country’s economic future hangs in the balance.
Instead of capitalizing on the situation, though, the House of Representatives unanimously approved the protectionist dairy bill.
What’s next? It’s pretty clear that Trump has been vocal about his discontent regarding Canada’s dairy tariffs. He had promised that the USMCA would remedy these issues, yet Canada still controls tariff allocations for various dairy products.
Canada offers tariff-free access for a limited volume of dairy products, but anything beyond that comes with hefty tariffs. Trump frequently brings up these high charges, which can reach as much as 298% for butter.
Interestingly, U.S. dairy farmers don’t actually face these burdensome fees, which raises a significant question: why not?
The Biden administration has pointed out that Canadian quota policies favor domestic processors of dairy products, potentially harming U.S. exports worth hundreds of millions.
In 2021, the U.S. challenged these customs fee allocations under the USMCA. Despite being found noncompliant, Canada’s response is still awaited, which has led to frustration from the Biden administration.
As Trump pushes for stronger customs duties, the U.S. isn’t alone in voicing concerns about Canada’s dairy tariffs. New Zealand filed a similar complaint under the trans-Pacific partnership agreement, and both countries have initiated disputes at the World Trade Organization regarding Canada’s tariff practices.
This backdrop explains why there’s domestic unease about the recent bill.
The Canadian Cattle Association labeled it as “bad trade policy,” while the Agri-Food Trade Union criticized it for undermining Canada’s commitment to a rules-based international trade system.
The pressures from Trump’s tariffs should encourage Canada to make significant strides toward dissolving internal trade barriers. Ideally, tackling supply management should have been approached with urgency and creative solutions.
Unfortunately, that doesn’t seem to be the case with Canada’s latest dairy protection legislation.
