Moneybox

Why Donald Trump Is Absolutely Obsessed With Canadian Dairy Protectionism

CAMBRIDGE, WI - APRIL 25:  Cows eat before being milked on Hinchley's Dairy Farm on April 25, 2017 near Cambridge, Wisconsin. President Donald Trump today tweeted 'Canada has made business for our dairy farmers in Wisconsin and other border states very difficult. We will not stand for this.'  (Photo by Scott Olson/Getty Images)
It’s the issues you least expect.
Scott Olson/Getty Images

America’s relationship with Canada has sunk to a surreal new low thanks to tensions over trade/Donald Trump. And when anybody asks Donald Trump to explain why he’s so furious at Ottawa, he almost always circles back to one topic: The dairy industry.

The dairy industry! Our neighbors to the north have long used high tariffs to shield their domestic milk producers from foreign competition, and the issue seems to have become a fixation for the president. Trump tweeted and talked about it incessantly before and after last weekend’s disastrous G-7 summit. “I love Canada,” he told reporters, “But they treat us unfairly on trade. Very, very unfairly. You see the numbers. Almost 300 percent on dairy.” The president even went so far as to suggest that he imposed steel tariffs on Canada in retaliation for the country’s protectionist stance on butter and cream. (This seemingly contradicted the administration’s official line, which was that the steel tariffs were necessary for U.S. national security).

The president isn’t necessarily wrong to criticize Canada’s dairy policies, which are antiquated and harmful for the country’s own consumers, as well as American farmers. But his obsession with the subject is yet another example of his rhetoric on trade being broadly misleading, even when it gets specifics right.

Trump is peeved about Canada’s so-called “supply management system” for dairy products and poultry, which sets prices and then limits production by farmers to keep the market from flooding. The government then keeps out cheaper imports using stiff tariffs, ranging from 168 percent on eggs to 270 percent on milk to 298 percent on butter. These days, the Canadian government exempts a small share of imports from the tariffs, but not much—with yogurt, for instance, it works out to about a teaspoon per Canadian per year.

Many in Canada complain that the system, which dates back to the 1970s, is an anachronism that lets the country’s shrinking number of dairy farmers profit on the backs of everyday families. Canadians pay far more for their milk than Americans, and the policy is especially burdensome for the poor; one recent estimate suggested, for instance, that lower-income households end up spending an extra $339 a year for groceries due to supply management. But the policy has survived because Canada’s 11,000 dairy farmers are a powerful interest group overwhelmingly located in the politically influential provinces of Quebec, where Prime Minister Justin Trudeau is from, and Ontario. The issue is so sensitive that Canadian dairy and poultry were entirely exempted from the North American Free Trade Agreement’s tariff reductions. As the Toronto Star’s editorial board put it last year: “The folly of our continued commitment to supply management is widely accepted in policy circles, yet it persists in part because risk-averse politicians fear the purportedly powerful dairy farmers lobby.”

The issue seemingly came to Trump’s attention for the first time in 2017, after a controversy flared up between U.S. farmers and Canada over ultrafiltered milk, a protein product used to make cheese. The stuff had essentially been exempt from Canada’s tariff system, allowing American dairies to work up a nice business exporting it North. But the Ontario dairy board eventually used its regulatory powers to shut out the imports, outraging a group of dairy state politicians, including Wisconsin Gov. Scott Walker, House Speaker Paul Ryan, and New York Gov. Andrew Cuomo, leading Trump to tweet about the unlikely international flashpoint in April.

He’s been on the warpath over the price of Canadian milk ever since.

Some have argued that Trump lacks the moral high ground to criticize Canada for its dairy policies. Many of have called attention to the fact that he walked out of the Trans-Pacific Partnership, which cracked open 3.25 percent of Canada’s dairy market to foreign competition, a small but meaningful step towards liberalization. Its been pointed out that the U.S. puts its own high tariffs on dairy that could theoretically block imports (agricultural economists told me that the main reason Americans don’t buy much foreign milk is that American farmers are extremely good at producing it for cheap). And some have pointed out that U.S. has its own agricultural sacred cows—they just tend to be more metaphorical. For instance, our sugar industry is protected by an elaborate system of price supports and tariffs that puts Mexico at an enormous disadvantage, and forces Americans to pay more for their sweets.

But the real issue here isn’t whether Trump has the right to attack Canada for protecting its farmers. It’s that he’s using the dairy industry, which is a bit of an edge case, to paint a wildly inaccurate portrait of trade between the U.S. and Canada, and how it affects our farmers. NAFTA, and the Canada-U.S. Free Trade Agreement that preceded it, eliminated most tariffs on farm goods. As a result, American farmers do quite a lot of business across the northern border. Most years, we run a small trade deficit on agricultural goods with Canada; in 2017, we ran a small surplus, exporting $24 billion worth of products and importing $22 billion, according to the U.S. Trade Representative. Neither side is getting robbed. Dairy isn’t everything.

Trump, of course, would have you believe otherwise. Trump likes to harp on specific, high tariffs to make it seem as if America’s trade partners are deeply protectionist when, in fact, most of them keep trade barriers very low overall. He uses the dairy issue to make a broader case that Canada is waging a war on all American farmers when, in fact, our agricultural systems are pretty deeply entwined. And he deploys it over and over again, probably because there aren’t many other great examples to support his case. Trump has found his talking point. And, as usual, he’s going to milk it for all it’s worth.

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