Canadian Dairy Policy Again Looms Large

OMAHA (DTN) -- Once again, President Donald Trump is pressing Canada with the imminent threat of 50% tariffs on some products, and dairy market access remains a sticking point in talks.

Without a deal, the United States will hit Canada with the tariffs on Wednesday, involving roughly $20 billion in products, including dairy, cement, clothing, wine, furniture, and even hockey sticks.

The fight over dairy highlights the outsized role the sector continues to play in U.S.-Canada trade disputes. Cross-border dairy sales account for roughly one-tenth of 1% of overall trade between the two countries, yet Canada's efforts to limit dairy imports remain a major sticking point as Trump presses for greater access to the Canadian market.

The dispute dates back to negotiations over the U.S.-Mexico-Canada Agreement (USMCA), when U.S. dairy producers sought greater access to Canada's tightly controlled market. Six years after the trade deal took effect, the two countries are still battling over whether Canada has provided the market access it agreed to.

When Trump announced the tariffs in July, he blamed Canadian provinces for pulling U.S. alcohol off the shelves and also said Canada gives the European Union better access for products such as cheese than it gives U.S. products.

Canadian Prime Minister Mark Carney told the Canadian press on Monday that last-minute negotiations were continuing and he planned to speak with Trump over the next two days. Carney told reporters the talks were "very delicate and intense," and he didn't want to negotiate in public.

"We are in the middle of a negotiation, and we are coming into those negotiations from a position of strength," Carney said, according to a Canadian Broadcasting Corp. (CBC) report.

Across the economy, Canada exported $380 billion in goods to the U.S. in 2025, including $39.3 billion in agricultural products.

DAIRY CONFLICTS CONTINUE

U.S. Trade Representative Jamieson Greer was quoted last week as saying Canada has "uneven dairy treatment" with the U.S. market.

Quebec Premier Christine Frechette said last week that supply management is a "red line" in her province, where thousands of jobs are tied to the dairy sector.

Canadian dairy processors exported $585 million in dairy products to the U.S. last year. The U.S. exported $1.3 billion in dairy products to Canada.

Marcos Carias, an economist with the French-based trade credit insurance company Coface, noted the dollar value of dairy trade is small, but Canada's dairy sector also remains "extraordinarily protected" from competition.

"Once you go above the tariff quota, you go into 250% tariffs. That's basically prohibitive," Carias said. "That basically means you cannot sell anything above that."

By comparison, the U.S. exports $2.6 billion in dairy products to Mexico under the USMCA. But Mexico has a population of 133 million versus 41 million in Canada. On the surface, those figures suggest Canada buys roughly 60% more U.S. dairy products per capita than Mexico.

Jaime Castaneda, executive vice president of policy for the National Milk Producers Federation, said the raw numbers on dairy exports don't provide an accurate picture.

"That would assume that everything we export into Canada stays in Canada, which is not accurate," Castaneda said. "Most of whatever is sent to Canada goes out again under the re-export program."

States such as Vermont and New York send a lot of cream and other products to Canada, which come back into the U.S. as ingredients in other products such as baked goods, Castaneda said.

Mexico imports more high-end products such as cheese and other consumer products, Castaneda said. "Mexico actually imports a variety of products that are much more beneficial to dairy farmers," Castaneda said.

During the first USMCA negotiations, the U.S. dairy industry asked for access to 10% of Canada's dairy market but received 3.25%. Since then, the U.S. and Canada have battled in trade dispute-resolution panels over whether Canada has provided that access. Each side has won a case, but the Canadians won the last round in 2023.

"They have played games over the past six years or more in doing whatever they could to prevent that 3.25% from actually being imported," Castaneda said. "So, what we want at this point is for them to comply with what they agreed to under USMCA."

Dairy Farmers of Canada and the Dairy Processors Association of Canada last week said that Canada continues to uphold its commitments under the trade deal. The groups argued that Canadian negotiators should not give up control over the country's food supply in trade talks. The two groups also noted the U.S. has a $432 million advantage in dairy trade.

"We won't apologize for wanting a strong Canadian dairy sector that ensures a reliable supply of milk from Canadian farms, produced to Canadian standards while contributing to Canada's economy and the vitality of its rural communities," said David Wiens, president of Dairy Farmers of Canada.

Castaneda said opening up Canada to more dairy exports from the U.S. doesn't mean Canada has to give up how the country manages its dairy farms.

"We have never asked them to eliminate supply management," Castaneda said. "We don't get involved in their domestic policy decisions. That is for them to decide."

Beyond dairy, the Trump administration wants to rebalance auto manufacturing and gain greater access to Canadian critical minerals. Still, Carias said he doesn't think the U.S. focus on dairy in the tariff talks is leverage for discussions around other sectors.

"I think the dairy is an issue in and of itself," he said.

Canada also has avoided using its biggest weapon, which is energy exports to the U.S. Canada exported nearly $91 billion in crude oil to the U.S. last year. But Canada's major oil-producing provinces include Alberta and Saskatchewan, two provinces that don't align with Carney's government. Alberta, for instance, already has a vote set for October to consider whether the province should separate from Canada.

"It's going to be difficult for there to be a unified political will to use those big weapons in Canada," Carias said.

Chris Clayton can be reached at chris.clayton@dtn.com

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