U.S. President Donald Trump has spelled out in blunt terms what it will now take to get a trade deal with Canada – an end to this country’s steep tariffs on dairy products.
Mr. Trump warned on Monday that the United States is ready to slap a tariff on Canadian-made cars and trucks unless Ottawa undoes its protectionist dairy policies, including tariffs of nearly 300 per cent.
“We can’t have that. We’re not going to stand for that,” Mr. Trump vowed after announcing a tentative trade deal with Mexico to rework the North American free-trade agreement.
So there you have it. The price of a NAFTA trade deal with the United States – according to Mr. Trump at least – is the removal of one of the vital pillars that underpins Canada’s supply-management system.
The deal reached with Mexico also underscores that the United States is continuing to dictate terms to Canada. Notably, the U.S.-Mexico agreement includes a sunset clause that would impose a review every six years and make it expire completely after 16. It’s not clear how this will fly with Ottawa, which has long maintained that U.S. demands for a sunset clause are a deal breaker.
Tariffs ranging from 150 per cent to 298 per cent and strict import quotas ensure that only limited quantities of foreign dairy, poultry and eggs enter this country’s sheltered market. In Canada, production levels are tightly regulated, as are the prices farmers get for their milk, chicken and eggs.
Without these prohibitive tariffs, U.S. milk and chicken products would flood into Canada, making it impossible for marketing boards to maintain production controls and the artificially high prices paid to farmers.
At this point, dairy, chicken and eggs make up a minuscule share of Canada-U.S. trade. But Canada’s supply-management system has emerged as a convenient and frequent target for Mr. Trump – most likely because it is such an anomaly in a mostly open-trade border between the two countries. It is Canada’s Achilles heel on trade, and Mr. Trump knows it.
Mr. Trump may also figure that it is one area where Canada is ready to compromise. Getting rid of supply management would be painful in the short term for the country’s roughly 12,000 dairy farms. But making concessions could prove to be a big winner for the broader economy. Many economists have long complained that supply management punishes consumers, renders domestic farms and processors less efficient and deprives Canada of lucrative export opportunities.
Ottawa has made it clear that it isn’t ready to budge on other U.S. key demands, including an end to independent resolution of trade disputes and less access to U.S. government purchases.
On supply management, Ottawa has at least hinted at a willingness to bargain. Prime Minister Justin Trudeau, for example, acknowledged some “flexibility” on the system in a June interview on NBC’s Meet the Press.
Politically, supply management remains uncomfortable ground. Just witness the continuing battle between Conservative Leader Andrew Scheer and MP Maxime Bernier, who quit the party last week to form his own political movement – in part to freely push his staunch anti-supply-management views.
And sacrificing supply management to get a NAFTA deal might prove costly for Mr. Trudeau’s Liberal government, which could lose seats in rural Quebec to Mr. Scheer’s Conservatives as a result. The dairy industry is heavily concentrated in Quebec, home to half the country’s dairy farms and the largest share of production.
Dairy trade is a complex subject. While it is true that the U.S. market is more open than Canada’s, it isn’t completely free or without tariffs and other restrictions. Both countries have quotas and other trade-inhibiting practices in agriculture.
Mr. Trump couldn’t care less about any of that. Getting Canada to budge on dairy tariffs would allow him to claim a trade win and validate his use of tariff threats to get concessions.
None of this means a NAFTA deal that includes Canada is imminent. There is still a long way to go.
Mr. Trump has suggested that it would be easy to kill NAFTA and do bilateral deals with Mexico and Canada. It would not.
And time is very tight to get this all done before the November U.S. midterms elections, when the political landscape in Washington could shift dramatically for the Republican administration. Mr. Trump needs to give Congress 90 days notice of a pending trade agreement.
That means Friday is the apparent deadline day for completing a NAFTA deal this year.
It’s hard to imagine Ottawa caving completely on supply management by then.