Canada’s agricultural supply management system is an outdated, protectionist racket that uses tariffs and quotas to limit the country’s supply of dairy, eggs and poultry, and sets prices for them based on production costs instead of demand. If it survives to this day, it is due to the disproportionate political clout of a relatively small number of dairy farmers in Ontario and Quebec.
As a trade-related measure, it is now in the crosshairs of President Donald Trump. He has complained repeatedly in recent days about the high tariffs Canada charges on imported milk. He even blamed them for the recent U.S. decision to impose tariffs on imported steel and aluminum.
“Our Tariffs are in response to [Justin Trudeau’s] of 270% on dairy!” the President tweeted, in complete contradiction to his previous claim that the U.S. tariffs on steel and aluminum were imposed on Canada, the European Union and Mexico to protect national security.
Mr. Trump has also lately tweeted that he may impose ruinously high tariffs on cars made in Canada if Ottawa doesn’t renegotiate the North American free trade agreement on his terms. Because the U.S. has long wanted Canada to open its agricultural markets, some in Canada are now asking whether this might be the moment to acquiesce.
It is not. You can count this page among the voices that want to see supply management end. But Mr. Trump’s sudden interest in the tariff rate on one particular product is no reason for Canada to lurch into a bruising and divisive domestic battle over this issue.
In fact, Mr. Trump’s decision to spotlight Canada’s dairy tariffs should only be relevant to observers for what it reveals about his lack of understanding of free trade, and the hypocrisy and fakeness of his protectionist rhetoric.
To start, he has repeatedly lied and said the U.S. has a trade deficit with Canada. In fact, the U.S. had an US$8.4-billion surplus with us in 2017, when you count both goods and services, which is the proper metric. Mr. Trump prefers to look only at the goods part of the equation, in which case his country ran a US$17.5 deficit with Canada in 2017.
No one else reads it that way. The conclusion by sane economists in both countries is that trade between Canada and the U.S. is essentially in balance, a remarkable accomplishment given that the U.S. is our biggest trading partner and we are their second biggest.
Mr. Trump also prevaricates when he says, as he did last week, that “Canada is charging massive Tariffs” on U.S. goods. Canada, in fact, has one of the lowest average tariff rates in the world. It sat at 0.85 per cent in 2016, according to the World Bank – half as much as that of the U.S.
For the most part, goods stream back and forth across the border largely unbothered by tariffs and duties.
Yes, there are a few exceptions, such as the 270-per-cent tariff on surplus milk. But every country has its special cases. The U.S., for instance, applies whopping great tariffs on tobacco, sugar, light trucks and, wait for it, dairy products.
The U.S. also subsidizes its dairy industry to the tune of billions of dollars every year. And then there is this: Canada imports twice as much in dairy goods from the U.S. as it exports there every year – a trade deficit in milk products.
So why has Canada, and dairy in particular, become Mr. Trump’s favourite target, when trade with us is balanced, highly interwoven and efficient?
No one should be fooled into thinking milk tariffs are the issue. This is about the Trump administration getting fed up that its allies in Europe and Canada are arguing effectively against his justification for tariffs on steel and aluminum, as they did at the G7 summit in Quebec.
It’s also about Canada pleading its NAFTA case to Congress, state governors and U.S. media, something Mr. Trump’s trade adviser, Peter Navarro, called “not playing fair.”
Mr. Trump is losing control of his trade narrative, and his overwrought reaction isn’t helping. His strident attacks on Canada, in particular, have many government leaders scratching their heads. A difference of opinion on tariffs is simply not a reason to insult a steadfast ally.
Canada will debate the future of supply management on its own terms. In the meantime, our government should continue to tell the truth about the mutual benefits of free trade to those in the U.S. who are not impervious to facts, and to speak frankly about the consequences of trying to hurt us with unjustified tariffs.