Canada is doubling down on dairy tariffs ahead of talks with Trump

The Hill

6 hours ago

Trump often rails against Canada's prohibitively high dairy tariffs. He's about to get angrier.
That's because last week, the Canadian Senate passed new legislation, years in the making, which bars the government from negotiating away its dairy protectionism in future trade agreements.
The bill's timing was no accident. Canada wants a carve-out from Trump's tariffs and hopes to renew the United States-Mexico-Canada Agreement next summer. Trump will demand a lot from Ottawa in exchange. Concessions on Canada's tariff-rate quotas on dairy will be at or near the top of the list.
Canada's new bill takes these tariff-rate quotas off the table. This is misguided. Not just because it will frustrate the U.S. and other trade partners, but also because supply management isn't in Canada's national interest.
A lot of ink has been spilled trying to make sense of supply management. The system, which dates to the 1970s, sets provincial quotas, establishes minimum prices and imposes steep tariffs.
Proponents argue it stabilizes prices and farm incomes. Critics say it results in higher prices for Canadians, stifles industry innovation in agriculture and has caused serious trade tensions long before Trump.
Both sides agree on something: Supply management is the third rail of Canadian politics.
That's because the system's quotas mostly advantage dairy farmers in Quebec and Ontario. Since these provinces are essential to winning federal elections, Canada's political parties are loath to touch supply management.
But Trump's tariffs have given Canadian elected officials the political cover needed to shake up supply management. Under the cloud of unprecedented trade policy uncertainty, big questions loom about the country's economic future. It's a moment of nation-building. It's a time of seriousness.
Instead of rising to the occasion, the House of Commons unanimously approved its protectionist dairy bill.
What comes next? The writing is on the wall. Trump has raged against Canada's dairy tariffs for years. He vowed that the USMCA would fix things, but it gave Canada 14 tariff-rate quotas on products from milk to cheese and butter that have further complicated things.
Canada's tariff-rate quotas give U.S. dairy farmers tariff-free access on up to, say, 50 million metric tons, for example, but then subject them to punitive tariffs for anything more than this. The rates, ranging from 241 percent on milk to 298 percent on butter, are the ones that Trump likes to talk about.
But U.S. dairy farmers aren't actually paying these exorbitant rates because they have never exceeded the quotas. Which invites the all-important question: Why?
The Biden administration argued that Canada's quotas favor domestic 'processors' of dairy products, as well as so-called 'further processors' that use dairy as inputs used by other products. This keeps high-value-added U.S. exports worth hundreds of millions of dollars out of the Canadian market.
In 2021, the U.S. brought a case against Canada's tariff-rate quotas under the USMCA and won. In a second case, however, Canada was deemed to be in compliance with its obligations. This ruling frustrated the Biden administration. Now, Trump wants to use tariffs to make things right.
The U.S. isn't alone in complaining about Canada's dairy tariff-rate quotas. Just Last year, New Zealand filed a similar case against Ottawa under the Comprehensive and Progressive Trans-Pacific Partnership. The U.S. and New Zealand have also sued Canada over its tariff-rate quotas at the World Trade Organization.
Given this, it should hardly be surprising that there's domestic opposition to the bill.
The Canadian Cattle Association called it 'bad trade policy.' The Canadian Agri-Food Trade Alliance said it was 'a flawed piece of legislation that sets a troubling precedent, undermining Canada's longstanding commitment to the rules-based international trading system.'
Trump's tariffs inspired Canada to take bold steps to remove inter-provincial trade barriers, despite age-old political hurdles. Getting out from under the country's supply management should have been prioritized with the same level of urgency and commitment to creative problem-solving.
Canada's new dairy protectionism bill isn't that.
Marc L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at the Walsh School of Foreign Service, Georgetown University.