Skip to main content

Nobody tell Donald Trump, but there are one or two big NAFTA concessions that Canada could make without any lasting damage to its economy. Take supply management on dairy products. Please.

If the U.S. President is really willing to do a deal on the North American free-trade agreement, the Canadian government might be able to trade access to the dairy market to get some of its own must-haves.

There’s a lot at stake in NAFTA talks – auto plants, steel jobs and the flow of investment. Opening up Canada’s highly protected dairy market wouldn’t really damage Canada’s economy, but it’s something Mr. Trump seems to want. It could be the bargaining chip that seals a NAFTA deal.

The question is whether Prime Minister Justin Trudeau would take that kind of political gamble.

Related: Mexico’s incoming president sees NAFTA movement

Read more: Trump defends trade, tariff policies during rally in Florida

The supply-management system for dairy, eggs and poultry has long been seen by Canada’s political parties as untouchable. Dairy farmers have a well-financed lobby working to keep supply management, the system that sets prices and protects farmers from competition. It’s an especially muscular lobby in Quebec, where Mr. Trudeau needs to win the lion’s share of seats to retain power. Would the PM risk re-election to do a deal for Canada’s economy?

That’s not a burning question yet. But it could be soon.

At the moment, there isn’t an acceptable deal on the table. The Trump administration’s position is laden with poison pills. It followed tactics set out in Mr. Trump’s ghostwritten 1987 autobiography, The Art of the Deal: Demand the moon, and keep the pressure up.

It means constant pressure on Canada and Mexico to make concessions – the U.S. keeps demanding to see the other countries’ bottom lines.

U.S. negotiators set out tough positions last October. Mr. Trump speculated he might do a deal with Canada but not Mexico, or vice-versa. The U.S. imposed steel tariffs. U.S. officials now suggest they might negotiate a deal with Mexico, then demand Canada make concessions to join.

But those poison pills still stand in the way of a deal. The U.S. demand for a sunset clause, which would see the renegotiated NAFTA lapse in five years unless it is renewed, would make trade and investment rules short-term, and subject to constant renegotiation melodrama. It’d be better to have no NAFTA at all.

There are signs that Mr. Trump wants to declare victory on some fronts in his trade war. He’s heard worries from farmers and Republicans in Congress. He made a vague agreement with the European Union last week to avoid new tariffs, touting it as a win for U.S. farmers. His Treasury Secretary, Steven Mnuchin, told Fox News on Sunday that NAFTA is the next priority. Mexican officials are in Washington to try to clear away a disagreement on Mexican wages.

Any deal will still require the United States to remove poison pills such as the sunset clause. That might take some dealing. Mr. Trump wants to claim a victory. If Canada gave up supply management, and 200-per-cent-plus tariffs on dairy products, it would win, too.

That would lower prices and allow Canadian producers to seek export markets from which they are now barred. Martha Hall Findlay, president of the Canada West Foundation, argues Canada should dismantle supply management even if not a NAFTA issue.

That would mean compensating dairy farmers; their quota to sell milk is typically one of their most valuable assets. It would cost billions. But Ms. Hall Findlay argues the compensation can be paid over years, from a modest charge on milk. And she argues it would be better to dismantle the whole system than to pay farmers compensation each time a trade deal opens a small part of the market to foreign dairy – as happened with the Canada-EU trade deal and the Trans-Pacific Partnership.

But that’s a big political risk for Mr. Trudeau. He’s not likely to want to take a step that would send the dairy lobby into war just before next year’s election. Even giving the United States access to a chunk of Canada’s dairy market would mean a high-stakes political battle. But if Mr. Trump really is willing to drop the poison pills in the end game to NAFTA talks, a concession on dairy could be the best bargaining chip to seal a deal.

Follow related authors and topics

Authors and topics you follow will be added to your personal news feed in Following.

Interact with The Globe