In the midst of what appears to be a full-blown trade war between Canada and the US over steel and aluminum, and with Donald Trump taking his first steps on Canadian soil for the G7 summit, a familiar bugbear reappeared to haunt the negotiations. Canada charges the U.S. a 270% tariff on Dairy Products! They didn’t tell you that, did they? Not fair to our farmers! — Donald J. Trump (@realDonaldTrump) June 8, 2018 Whatever understanding Canada and the US may (or may not) have come to on their high-value trade in lumber or auto parts, they remain implacably opposed on the comparatively minor matter of milk. 01:12 Justin Trudeau's G7 comments that angered Donald Trump – video Trump has attacked Canada’s protected dairy industry before, calling it a “disgrace” and blaming it for widespread hardship among US farmers. Although the entire trade in dairy products between the two countries is worth less than US$600m, ideological division has sharpened the ongoing dispute. His negotiators have demanded the dismantlement of Canada’s openly dirigiste system of supply management in agriculture – a complicated nexus of production quotas and import tariffs designed to ensure Canadian dairy, egg and poultry farmers receive fair prices for their products. In what free-trading Americans like to call Soviet Canuckistan, the dairy industry is thriving like never before But the Canadians are no less determined to retain one of the last vestiges of their otherwise-abandoned collectivist traditions. Canadian cows are sacred, and the farmers who care for them enjoy outsized influence in national politics. Expert observers have said that Justin Trudeau’s government would abandon the treaty altogether before sacrificing supply management. “It’s just too sensitive for the Canadians,” Kevin Carmichael, a senior fellow at the Centre for International Governance Innovation in Waterloo, recently told CNBC news. Even so, the Trudeau government recently alarmed Canadian farmers by signalling a willingness to give on the issue in the face of insistent US demands. The dispute has acquired new urgency as the US dairy industry continues to suffer from a deep crisis of persistent overproduction, with farmers sinking into insolvency as farm-gate milk prices stick stubbornly below the cost of production. Last year, US farmers dumped almost 100m gallons of surplus milk. Recently, a surge in dairy-farmer suicides has caused national alarm, drawing attention to what the New York Times called “the widespread hopelessness afflicting the industry”. Representing a state suffering especially hard from farm failures and suicides, the US Senate minority leader, Chuck Schumer, recently echoed his Republican president in blaming Canada for the debacle. “Canada, when it comes to dairy, acts like China when it comes to trade,” Schumer told hard-pressed farmers in upstate New York. “They’re unfair. They put up barriers. They treat us bad.” Meanwhile, just across the St Lawrence river in what free-trading Americans like to call Soviet Canuckistan, the dairy industry is thriving like never before – and like none other in the developed world. Family farms milking an average of 80 cows each have prospered under a heavily regulated system that supports prices at sustainable levels by restricting domestic overproduction and keeping imports at bay. In 2016, Canadian farmers received an average price of C$0.79 a litre for milk, compared with C$0.49 on average for US farmers. The result is that dairying remains a key economic support of traditional rural life throughout central Canada. As critics of the system like to point out, hoping to inspire resentment among consumers annoyed by the price of milk, Canadian dairy farmers enjoy incomes 60% above average in the country. But to supporters, the uniquely prosperous, protected Canadian dairy industry stands as a model alternative to the increasingly disruptive and unpopular dynamic of unrestricted free trade in all things. Supply management enjoys strong government support in no small part because the policy obviates the need to subsidize farmers directly in the manner of the US and the EU – the two greatest culprits behind the current world dairy glut. “The system works so incredibly well,” said Bruce Muirhead, associate vice-president and professor of history at the University of Waterloo. “And the big thing about supply management is that it doesn’t cost the government a cent. Consumers pay the full cost of production.” Domestic critics have called supply management a grotesque distortion of free-market principles, complaining that the comparatively high price of Canadian milk sacrifices the interests of consumers in favour of producers and victimizes the poor. But no consumer or social policy group has taken up the cause, and all six parties currently represented in the House of Commons unanimously support supply management. As do Canadian consumers: an Ipsos poll this year by the Dairy Farmers of Canada reported that 75% of Canadians support even greater government efforts to defend the industry in the face of current US demands. As the trade minister, Chrystia Freeland, has pointed out, trade data flatly contradicts the claim that Canadian supply management is ravaging US dairyland – either because it unfairly restricts imports or because it dumps a subsidized surplus in US markets. In 2016, Canada imported dairy products from the US worth five times more than the small amount it exported there. “I would call that a pretty good deal,” she told the House of Commons. Canadian farmers point out that despite the tariffs that protect them, imports make up 10% of the country’s dairy consumption. By contrast, the US restricts dairy imports to 3% of domestic consumption. “That just screams hypocrisy to me,” Muirhead said. “I don’t understand how they can get away with these positions.” As a recent visitor to Wisconsin, “America’s Dairyland”, where low prices are forcing the closure of hundreds of dairy farms a year, Muirhead said he encountered no resentment against Canada among local farmers. “The president of the Wisconsin Farmers Union told me that what they really wanted was a supply-managed system like ours,” he said. Dairy deregulation has spread hardship wherever it has been implemented, Muirhead added. “Every single objective indicator says that in the case of dairy you cannot have a system that operates without production controls,” he said.<doc-sep>Share this Story: 'Very twisted': Alberta dairy industry finds itself in the crosshairs of Trump's trade blast 'Very twisted': Alberta dairy industry finds itself in the crosshairs of Trump's trade blast Photo by Brennan Linsley / AP Article content Alberta dairy farmers at the centre of a developing trade war between Canada and the U.S. are calling President Donald Trump’s targeting of the Canadian industry unfair. Following a tense G7 meeting, Trump called Prime Minister Justin Trudeau “dishonest and weak” on Twitter, in reference to statements Trudeau made in a press conference regarding retaliatory tariffs on American steel and aluminum products. We apologize, but this video has failed to load. tap here to see other videos from our team. Try refreshing your browser, or 'Very twisted': Alberta dairy industry finds itself in the crosshairs of Trump's trade blast Back to video Trump stated that the initial American tariffs on Canada were in response to the U.S. paying prices 270 per cent higher on dairy than they should be because of unfair Canadian trade practices. PM Justin Trudeau of Canada acted so meek and mild during our @G7 meetings only to give a news conference after I left saying that, “US Tariffs were kind of insulting” and he “will not be pushed around.” Very dishonest & weak. Our Tariffs are in response to his of 270% on dairy! — Donald J. Trump (@realDonaldTrump) June 9, 2018 Advertisement Story continues below This advertisement has not loaded yet, but your article continues below. Article content “I think we need to see some truth come out of the U.S., but that doesn’t seem to hinder the president,” said Albert Kamps, a dairy farmer just outside of Lacombe. “There’s about 500 very worried dairy farmers in Alberta.” Kamps, vice-chairman of Alberta Milk, the organization representing the province’s dairy farmers, called Trump’s rhetoric “very twisted.” “We allow the first 10 per cent in with no tariffs. That changes the whole story,” said Kamps. “The U.S. only allows three per cent of their imports to come in without tariffs. We’re the big importers, a five-to-one trade imbalance with the U.S. on dairy alone.” On Sunday morning, Trump trade adviser Peter Navarro escalated tensions with Canada, saying on Fox News “there’s a special place in hell for any foreign leader that engages in bad faith diplomacy” with the president and “then tries to stab him in the back on the way out the door.” Economic advisor Larry Kudlow echoed those comments, likening Trudeau’s statements at the G7 to “a betrayal” during an interview on CNN. Canada charges the U.S. a 270% tariff on Dairy Products! They didn’t tell you that, did they? Not fair to our farmers! — Donald J. Trump (@realDonaldTrump) June 8, 2018 Advertisement Story continues below This advertisement has not loaded yet, but your article continues below. Article content Fair Trade is now to be called Fool Trade if it is not Reciprocal. According to a Canada release, they make almost 100 Billion Dollars in Trade with U.S. (guess they were bragging and got caught!). Minimum is 17B. Tax Dairy from us at 270%. Then Justin acts hurt when called out! — Donald J. Trump (@realDonaldTrump) June 11, 2018 Advertisement Story continues below This advertisement has not loaded yet, but your article continues below. Article content “This right now is probably the worse phase of Canada-U.S. relations since probably the early 1960s,” said Mount Royal University political scientist Duane Bratt. “I mean, Trump is right about the problems with supply management, but if it wasn’t supply management it’d be some other issue. Trump just likes a fight.” He said it’s disingenuous of Trump to now claim U.S. tariffs on aluminum and steel are in response to Canadian tariffs on dairy products. “He said it was for national security reasons and around NAFTA. NAFTA’s an opportunity to discuss these issues, but that’s not what he’s doing here,” said Bratt. “I don’t know how you negotiate with someone like Donald Trump.” Bratt said he believed Canadians would rally around Trudeau, something already seen in statements of support from conservatives like former Prime Minister Stephen Harper and Alberta UCP leader Jason Kenney. I’m in complete agreement with the Prime Minister’s statement. A reasonable, balanced and firm assertion that Canada will not be bullied, and that we will retaliate if the US Administration does not end its attack on our steel exports. https://t.co/4wZ9Vf3pAR — Jason Kenney (@jkenney) June 10, 2018 Advertisement Story continues below This advertisement has not loaded yet, but your article continues below. Article content “This isn’t policy, it’s personal,” Bratt said. “Do I think we should have supply management? Absolutely not, it’s economically distorting, it increases the price of milk and dairy products. I think Canada would be willing, listening to some of the comments of Trudeau, to discuss that. The problem is how do you discuss that today in response to some of the very over-heightened rhetoric by Trump and his advisors?” Kamps said Trudeau is right to defend Canada’s supply management system, “which has worked well for 60 years.” “Knowing the dairy industry, we know that a very small oversupply is devastating to prices,” he said. “It gives a fair price to the farmers, we don’t overproduce where we have to dump milk and we have a fair price at the stores and a guaranteed supply. If Trudeau sacrificed something like this, it would be devastating to Canadian dairy farmers because we’ve built our whole systems knowing that we would get a fair price into the future. You set up your financing for that. It would be if your bank or something took your mortgage and changed it.” Kamps said he hoped Canada’s leaders could find a way to de-escalate tensions surrounding the dairy industry. “It’s frustrating because there’s really very little we can do,” he said. “We have to depend on politicians to stand up for our system.” shudes@postmedia.com Twitter.com/SammyHudes Share this article in your social network Latest National Stories Advertisement Story continues below This advertisement has not loaded yet, but your article continues below.<doc-sep>President Trump lashed out at Canadian Prime Minister Justin Trudeau and the country’s trade relationship with the U.S. Sunday accusing Canada of “charging massive Tariffs” to U.S. businesses. In a tweet sent Sunday while en route to Singapore, Trump pointed specifically to Canada’s 270% tariff on dairy the origin of his frustrations with Canada. Trump’s stinging critique — while technically accurate — obscures the larger trade relationship between the two countries. Canada does indeed impose a 270% tariff on dairy that has kept many U.S. dairy products from making their way from the U.S. to Canada. And many other countries rely on similar measures to protect select domestic industries. But trade policy experts say Canada’s trade relationship with the U.S. is key to our domestic economy. Canada is the top U.S. export market, with the country buying more than $340 billion in American goods and services in 2017, according to data from the U.S. Trade Representative. And, overall, the U.S. has an $8.4 billion surplus with Canada. The U.S. has a significant deficit if only goods are included due to the service-sector-centered nature of the U.S. economy. Protective measures like Canada’s dairy tariff are common around the world. The U.S. uses tariffs to protect a variety of industries from a 350% tariff on tobacco to more 160% on shelled peanuts. In other cases, such as sugar, the U.S. has crafted a complex program to protect domestic industry by limiting imports. Officially, the Trump administration used national security grounds to justify the tariffs, but Trump’s clash with Canada may have more to do with a perceived personal slight than the facts of the bilateral relationship. On Twitter, Trump complained that Trudeau had criticized U.S. trade policy — specifically U.S. tariffs on Canadian metals — after the Canadian premier had “acted so meek and mild” in their one-on-one meeting. Trump said that he withdrew the U.S. from the G-7’s joint statement because of that slight. There were other foreign policy considerations as well. Trump advisers described Trudeau’s statements as a slight that threatened to make the U.S. look weak right as the president was leaving for a summit with North Korean dictator Kim Jong Un. “Based on Justin’s false statements at his news conference, and the fact that Canada is charging massive Tariffs to our U.S. farmers, workers and companies, I have instructed our U.S. Reps not to endorse the Communique,” Trump wrote. More broadly, Trump officials have repeatedly said that the U.S. has the lowest trade barriers in the world to bolster their argument for imposing tariffs on other countries. “What we have is a country here in the United States, which has the lowest tariffs in the world, lowest non-tariff barriers in the world,” said Peter Navarro, a White House trade adviser, on CNN in March. The U.S. does maintain some of the lowest tariffs in the world — if not the lowest — with an average levy of 2.8% on all goods, according to a ranking from the World Trade Organization. Three spots ahead on the list? Canada. Get our Politics Newsletter. The headlines out of Washington never seem to slow. Subscribe to The D.C. Brief to make sense of what matters most. Please enter a valid email address. * The request timed out and you did not successfully sign up. Please attempt to sign up again. Sign Up Now An unexpected error has occurred with your sign up. Please try again later. Check the box if you do not wish to receive promotional offers via email from TIME. You can unsubscribe at any time. By signing up you are agreeing to our Terms of Service and Privacy Policy . This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply. Thank you! For your security, we've sent a confirmation email to the address you entered. Click the link to confirm your subscription and begin receiving our newsletters. If you don't get the confirmation within 10 minutes, please check your spam folder. Write to Justin Worland at justin.worland@time.com.<doc-sep>Notice, though, that we export more in agricultural products to Canada than we receive. What’s more, we export more than five times as much dairy as we import. Then, at the bottom of that chart, services. We export twice as much in services as we import. Ignore that, and suddenly you’ve got a trade deficit, and if your argument is that trade deficits are necessarily bad and signs of being taken advantage of, you’ve suddenly got a problem.<doc-sep>
“It’s not about Trump and Trudeau,” Stephen Kelly, who served as the U.S. consul general in Quebec City and the deputy chief of mission in Ottawa, told me. “This has been an irritant for many years.” Decades, in fact—and not just for the United States, whose dairy farmers would like access to the Canadian market, but also their counterparts in New Zealand and elsewhere. New Zealand had opposed Canada’s entry into the Trans-Pacific Partnership over the supply-management system, but Stephen Harper, the Canadian prime minister at the time, agreed to dismantle the system in exchange for TPP membership. When the U.S. withdrew from the TPP, one of Trump’s first decisions as president, Canada withdrew that concession—other countries withdrew their concessions, as well—in the hopes that it could be put back on the table in the future if the U.S. rejoins the pact and demands compromises from the others. The Canadians aren’t entirely opposed to negotiating on the dairy industry if they are getting something in return: In its Comprehensive Economic and Trade Agreement with the European Union, Canada agreed to import European cheese without tariffs. From Canada’s point of view, it is worth it for nearly tariff-free access to the 28-member bloc that is the world’s largest economy. “In a multilateral context, there was more to trade off. Now the problem is that Trump is dealing with this in a bilateral context where trade barriers are generally very low,” Christopher Sands, the director of the Center for Canadian Studies at Johns Hopkins University’s School for Advanced International Studies, told me. “Most tariffs are down to zero anyway. So, there’s not much for the U.S. to give in return for the change.” It doesn’t help that the U.S. subsidizes its own dairy industry heavily—up to $22 billion in 2015, according to one study. “The Canadians say, ‘Hey, wait a minute. You subsidize milk, too,’” Kelly, who is now a research scholar at the Sanford School of Public Policy at Duke University, said. “You’ve got all sorts of support programs for milk.” In other words, Canada props up its dairy industry through quotas that cap the amount produced, and imposes heavy tariffs on imports. The U.S. subsidizes its dairy industry, resulting in lower costs for U.S. consumers, but a supply glut. “From a geopolitical point of view, the trouble with supply management is it's kind of in your face: ‘You cannot enter our market. You foreigners cannot enter our markets unless you pay tariffs of like 200 percent,’” Kelly said. “Whereas subsidies are more insidious. They … probably are anti-trade in some sense, but they’re not as glaring. … We do it more subtly.” Those subsidies exist in the U.S. for the same reason Canada has a supply-management system: domestic politics. Harper’s conservative government could make a concession on the TPP because, Sands said, his party had almost no parliamentary seats in Quebec, the province with the greatest concentration of dairy farmers; he was dealing with a budget surplus with which he could simply provide the farmers with cash payments; and, in return, he could offer Canadian dairy farmers access to foreign markets. Trudeau, on the other hand, doesn’t have these advantages: Quebec provides Trudeau his second-biggest bloc of seats, including his own, making him politically vulnerable if he infuriates dairy farmers. He has no obvious olive branch to offer the dairy industry. Perhaps most importantly, he's in a budget deficit.