Trump's Trade Wars Have Mobilized Canada's Dairy Cartel

The protectionist impulses of America's northern neighbor are rising to the top.



With a trade war in its early stages against China, the election of a left-wing populist in Mexico, and several new cases against trading partners in the World Trade Organization (WTO), there aren't a lot of reasons to be optimistic about the state of free trade in the United States. Unfortunately, the outlook in Canada is no better. Negotiations on NAFTA have been at a standstill since the Trump administration demanded that Canada accept a sunset clause to the agreement and abandon its unfair trade policies that protect its dairy industry, often referred to as supply management.

Trump is right to call out Canada's trade policies on dairy. But he neglects to mention the trade-distorting subsidies that the United States grants to its own dairy farmers. In 2015, U.S. dairy farmers received $22.2 billion in direct and indirect subsidies, according to a report commissioned by the Dairy Farmers of Canada. In other words, there are people to blame on "both sides".

Hypocrisy aside, Canada's supply management system for dairy is particularly and notoriously isolated from competitive pressures. Coveted quotas (valued at a total of $32 billion in Canadian dollars) are sold to a limited set of dairy farmers by the Canadian government, prices are set at a guaranteed minimum rate by provincial marketing boards, and tariffs on dairy products are so prohibitively high that they effectively bar all dairy imports from the United States and the rest of the world. Canadians pay a high price for this system. Milk and cheese are much more expensive in Canada than in the U.S., and the premium that Canadian consumers pay for these products is transferred to only a fraction of dairy producers: 16,000 quota-holders, most of whom are from Quebec. It's redistribution from the many to the well-connected few.

Prime Minister Justin Trudeau has pushed back against Trump's demands—most notably at the G7 summit which resulted in a top Trump advisor saying that Trudeau deserves a "special place in hell" for using an international platform to deliver a message for domestic consumption. But Trudeau's posturing to maintain supply management is earning him support among voters, and that has given him a stronger hand domestically to continue negotiations on NAFTA.

Posturing against reforming supply management is also a tenet of the Conservative Party—the party that is currently the Official Opposition in Parliament. Shortly after Trump's flurry of tweets attacking Canadian dairy policies, Opposition Leader Andrew Scheer sidelined the only outspoken critic of supply management, Member of Parliament for Beauce Maxime Bernier. Last year, Bernier was narrowly defeated in the Conservative Party leadership race against Scheer, largely due to the latter's support from the politically powerful dairy lobby.

Bernier ran on a libertarian-leaning platform that included policies such as getting the federal government out of healthcare and ending corporate welfare. The latter policy included questioning the efficacy of supply management, the sacred cow of Canadian politics. Scheer continues to face pressure from fellow Conservative MPs to further isolate Bernier by kicking him out of the Conservative caucus. Bernier is being ostracized by the Conservative Party for daring to articulate the party's supposed principles.

There's a cultural explanation for the unflinching impulse to defend supply management. It comes from a longstanding sensitivity about maintaining a Canadian identity that is independent from the economic and cultural leviathan to the south. This sensitivity has also manifested itself in the form of cultural protectionism for creative industries under the regulatory authority of the Canadian Radio-television and Telecommunications Commission (CRTC), where quotas for Canadian content are required for broadcasters. Former Prime Minister, and father of Justin, Pierre Trudeau (1919–2000) once said of the United States: "Living next to you is in some ways like sleeping with an elephant. No matter how friendly and even-tempered the beast, one is affected by every twitch and grunt." When NBC's Chuck Todd confronted the younger Trudeau with his father's analogy, Trudeau responded by likening Canada to a moose—strong, stubborn, yet acutely aware that it is massively outweighed by the elephant.

The bipartisan show of support for Canada's dairy cartel has shown that the national debate surrounding supply management is even less centered on the economic arguments of consumer choice and protected industries than it was before Trump's rhetoric. The conversation is now about whether or not Canada is surrendering to a bully, and no politician wants to be maligned as a trade-defeatist in an effort to let milk flow freely—especially with elections on the horizon in 2019.