U.S. President Donald Trump is putting Canada in his crosshairs, vowing to eliminate its "very unfair" dairy industry supply-management system and threatening to tear up the North American free-trade agreement for good if Ottawa won't agree to substantial changes. At a tool factory in Kenosha, Wis., Tuesday – where Mr. Trump signed an executive order to reinforce protectionist U.S. procurement policies and limit the number of highly skilled foreign workers coming into the country – the President promised to drive a hard bargain in NAFTA renegotiations later this year.
And for the first time since taking office, he accused Canada of trade violations as he pledged to seek "fair trade" for Wisconsin's dairy farmers.
"In Canada, some very unfair things have happened to our dairy farmers, and others, and we're going to start working on that," he told workers at Snap-on Tools. "It's another typical one-sided deal against the United States." If Mr. Trump goes after Canada's dairy industry, it could cause major political and budget problems for Prime Minister Justin Trudeau. Knocking down tariffs would deprive Ottawa of revenue, while a rise in imports could destabilize the country's carefully calibrated production system for industries worth about $10-billion annually.
Well-funded dairy lobbyists could also force taxpayers to hand over significant compensation: Last fall, the Trudeau government announced $350-million in compensation for Canadian milk producers after allowing more foreign cheese imports under the Canada-European Union trade deal.
Canada's protectionist rules for milk, eggs and poultry slap tariffs of up to 300 per cent on imports and tightly regulate price and production. The supply system stifles competition to ensure Canadian producers have steady market access. U.S. farmers also accuse their Canadian counterparts of slashing prices on ultrafiltered milk to drive American producers out of the market.
Mr. Trump's tough talk marks a return to his bellicose persona from the campaign trail last year, when he regularly derided NAFTA as one of the worst deals ever made. As President, Mr. Trump tamped the rhetoric down somewhat, calling only for "tweaking" in the Canada-U.S. trade relationship. And in recent weeks, a group of more moderate figures in his administration has been said to be gaining influence on the trade file.
But as he approaches 100 days in office, Mr. Trump renewed the fight. And where previously he had directed most of his NAFTA-related fire at Mexico, he now included Canada in his salvos.
"NAFTA has been very, very bad for our country. It's been very, very bad for our companies and for our workers and we're going to make some very big changes," he warned. "Or we're going to get rid of NAFTA for once and for all. We cannot continue like this, believe me."
On Tuesday, Canada's ambassador to the United States responded to Mr. Trump's attack by addressing the governors of New York and Wisconsin, two sources of U.S. dairy farmer discontent.
"Canada does not accept the contention that Canada's dairy policies are the cause of financial loss for dairy farmers in the United States. The facts do not bear this out," David MacNaughton wrote in a letter to New York Governor Andrew Cuomo and Wisconsin Governor Scott Walker.
Mr. MacNaughton attached a U.S. Department of Agriculture dairy publication that he said shows overproduction of dairy products in the United States and around the world are the reason for "poor results" in the American dairy sector. He also accused the U.S. of hypocrisy, pointing out that it imports a smaller percentage of dairy than Canada does and that the U.S. already has more access to Canada's dairy market than most countries do as a result of NAFTA.
Still, some Canadian politicians have suggested supply management could be used as a bargaining chip in NAFTA talks. Saskatchewan Premier Brad Wall floated the idea in Washington earlier this month, and contended loosening the system would have the side benefit of lowering prices through competition.
"If you take a look at the price of dairy in most states and you think about what low-income Canadian families are paying for the same block of cheese or quart of milk, maybe there's something meritorious about a policy that would potentially lower the cost of those staples for Canadians," he said.
Mr. Trump said Tuesday he was frustrated at the time it will take to get NAFTA talks started. Under the U.S. system for negotiating trade deals, the President must give Congress 90 days' notice before talks begin. "We have to wait these long periods of time. The whole thing is ridiculous," he said.
In the meantime, he is taking action on his own. The order signed Tuesday directs the government to reinforce Buy American policies – which favour U.S. firms over foreign competitors for government contracts – by eliminating any exemptions or waivers, such as those currently enjoyed by Canadian companies. It also seeks to tighten requirements for work permits, such as the H-1B visa heavily used by high-tech companies to bring in skilled foreign workers.
"For too long, we've watched as our factories have been closed and our jobs have been sent to faraway lands," Mr. Trump said, describing the World Trade Organization as "another one of our disasters."
The order, however, largely consisted of directives to his administration to come up with plans rather than immediate action. And there could be significant barriers stopping them from coming into effect.
Elliot Feldman, a Washington trade lawyer, said Buy American provisions run counter to WTO rules and run the risk of triggering trade wars. "It encourages other countries to pursue similar trade-distorting, anti-competitive policies which Americans, especially, don't like, as it shuts them out of foreign markets," he wrote in an e-mail.
Targeting H-1B could set up a battle between the White House and Silicon Valley. The tech sector has proven willing to fight Mr. Trump before, with such heavy-hitters as Apple, Facebook and Microsoft backing court challenges to the President's ban on immigrants from six majority-Muslim countries.
The fact that any measures will not come into effect immediately gives Canadian diplomats, politicians and business people time to push back. One senior official in the federal Finance Department said Finance Minister Bill Morneau will tell the Trump administration that Canada is opposed to Buy American provisions when he travels to Washington later this week for the annual meetings of the International Monetary Fund and the World Bank.
Canada has notched some successes. Earlier this month, New York State dropped Buy America provisions from its budget after lobbying from the Ontario, Quebec and Canadian governments.
Brad Duguid, Ontario's Economic Development Minister, who travelled to Albany to lobby on the New York measure, made the case that Americans are hurting themselves by making such moves.
"Any measures that the U.S. government takes that increase the cost of trade between Canada and the United States will impact the nine million American whose jobs depend on an unfettered Canada-U.S. trade relationship," he said in an e-mail.
With reports from Greg Keenan in Toronto and Joanna Slater in New York