In the growing dispute between the US and Canada over trade, US President Donald Trump has singled out for particular complaint steep levies Canada has on the books for imported dairy products, calling them “anti-American farmer.”
In theory, US milk, butter and cheese could face duties ranging from 200% to 300%. In practice, close to 99.9% of US dairy exports to Canada enter the country duty-free, according to the Canadian government. Still, Trump has demanded an end to the high tariffs.
How does Canada tax dairy imports?
Foreign dairy producers can sell to the Canadian market — facing little or no tariffs — up to a certain threshold, after which cost-prohibitive levies kick in. Canada’s government justifies the setup as part of its so-called supply management system. Begun in the 1970s, the system is designed to prevent surpluses or shortages of dairy supplies and to ensure that prices are high enough to make farms profitable. Under the system, local farmers face a production quota and if they go over the limit can be required to pour milk down the drain.
How does Canada’s system affect US exports into the country?
Last year, Canada was the second largest market for US dairy exports, after Mexico. The high tariffs only apply when American products exceed the amounts set for each category under the US-Mexico-Canada trade agreement, which was negotiated during Trump’s first term, and those ceilings are rarely hit. The agreement, called USMCA, resulted in a large expansion, over time, of the tariff-free amounts that can be sent from the US into Canada.
However, according to the International Dairy Foods Association, which represents the US dairy manufacturing and marketing industry, US farmers don’t exceed the limits because of various other protectionist measures Canada has in place. Those include providing monetary incentives to encourage Canadian processors to use domestic dairy inputs and setting compositional standards for cheese to limit ingredient imports, the group said.
Does Trump have a valid point against Canada’s dairy tariffs?
Complaints about these tariffs have been raised with Canada during international trade talks over the past several decades, including at the 2018 negotiations over USMCA. The US, European Union, Australia and New Zealand have called Canada’s system unfair, saying it limits market access. Some countries have also blamed the country for dumping low-priced products on global markets.
On the other side of that debate, Canada’s supply management is an alternative to direct farm subsidies that most countries, including the US, use to prop up their agricultural sectors. Supporters in Canada see it as crucial for the survival of local farms. A trade dispute settlement panel ruled in late 2023 that Canada’s dairy import quotas don’t unfairly limit access for US producers.
Is Canada likely to scrap its dairy tariffs?
While Canada’s dairy farms contribute billions of dollars to the gross domestic product each year and employ hundreds of thousands of workers who fuel local economies, their contribution to the economy pales in comparison with that of other export sectors at risk in a trade war, such as the auto, aluminum, lumber and aerospace industries. There’s also some opposition to supply management within Canada. Economists argue that it inflates the cost of dairy products to profit local farms, thereby hurting lower-income people especially. And critics point out that the eye-popping tariffs stir outrage abroad while having little real effect given that they’re so rarely applied.
Still, dairy farmers are politically powerful in Canada. The majority of farms are in vote-rich regions in Quebec and Ontario. And some consumers may like the fact that most of the dairy in the grocery stores is locally produced, especially now, given that 29% of Canadians view their neighbor to the south as an enemy, according to an early March survey. With a general election expected in the coming weeks, political parties are unlikely to take a stance against Canada’s dairy tariffs.
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