Understanding Canada's Dairy Tariffs

One of the most outlandish figures DT has shot toward Canada is referring to our exceedingly high dairy tariffs.  Unfortunately this is one of those stories where the part of the story not told is the interesting part.  If DT isn't outright lying, at least he's being dishonest and misleading. 

It all goes back to the Canada-U.S.-Mexico Agreement, a trade agreement negotiated by DT during his first term in office and described by him as 'the best trade deal ever made'.  Under that agreement, a compromise was reached on one of the many topics covered, dairy products.  Canada and the U.S. operate very different regulations governing dairy production, so a new idea was introduced, tariffs that do not apply below a certain level, with higher tariffs that apply once that level is reached.

Let me explain.

Canadian dairy production operates under a supply management system, wherein farmers need to own a quota for selling a certain amount of milk and other dairy products.  Quotas are allocated to provinces, designed to match dairy production to public dairy consumption.  Prices go up slightly for everyone, but it protects our small dairy industry.  There's a quota but also a guaranteed price, and tariffs control foreign competition.  Trump has always wanted access to the Canadian dairy market.

The American dairy industry is less fettered by regulation, and farms are on average considerably larger.  This allows higher production, but milk gets over-produced, and prices drop, leaving farmers scrambling for government subsidies.  There are no subsidies in Canada, just a guaranteed price.  But with high production you can easily understand that the American dairy industry wants access to Canadian consumers.  

So a compromise was reached in CUSMA, allowing U.S. access to a certain level of the Canadian market.  There are different rules for different products (primarily milk and cheese), but on average I understand the U.S. has access to about 16% of the Canadian market..  Below that level there is only a minimal tariff (7.5%) or no tariff at all.  That level has never been reached so no high tariffs have ever been charged.

Only if that level were ever to be reached would the higher tariffs Trump has moaned about kick in.  They never have, in spite of the fact that Canada imports over a billion dollars of American dairy products while the U.S. imports something over $300 million worth of Canadian dairy products.

There are of course other differences between Canadian and American dairy production.  Perhaps the most notable is the use of growth hormones in the U.S. which are illegal in Canada.  The FDA says these are safe for humans, but Canada says they can impact the cow's health.  The result is that many Canadians simply don't want to drink American milk.

And I should point out that American dairy farmers have indicated they would love to have a system like Canada's supply management.

So the story of Canada's 250% dairy tariffs is misleading at the least, but of course Americans who don't understand that Trump signed the agreement that put those tariffs in writing, may see that high figure as Canada 'ripping off' the U,S.  In this as in some of Trump's other pronouncements, the part of the story not told is the interesting part.