The Washington Post: Trump’s sudden preoccupation with Canadian milk, explained

By Caitlin Dewey April 25 at 2:18 PM

President Trump is escalating his tough talk on Canada, vowing to fight that country’s trade stance on milk after the Commerce Department imposed a punishing tariff on Canadian softwood lumber on Monday.

On Twitter Tuesday morning, Trump said that “Canada has made business for our dairy farmers in Wisconsin and other border states very difficult.” He added: “We will not stand for this. Watch!”

The tweet came after a tense, week-long standoff between politicians on both sides of the border about Canadian pricing of its dairy products.

The showdown sets a strained tone for discussions about the North American Free Trade Agreement. Trump has said he wants to renegotiate the agreement, and that he will announce his proposed changes within the next two weeks. He has not yet taken the formal step of informing Congress he intends to renegotiate the free trade deal.

But that has not held Trump back from speaking out about trade with Canada. At an event in Wisconsin last week, Trump called Canada’s dairy pricing scheme a “disgrace” and “another typical one-sided deal against the U.S.” He has promised to “stand up for our dairy farmers” and “get the solution,” though he has not specified what that solution is.

The Canadians, for their part, have insisted that the administration is blaming them for supply problems in the U.S. dairy market, citing U.S. Department of Agriculture statistics that show the U.S. dairy trade actually enjoys a surplus in Canada.

In a letter early last week, the Canadian ambassador to the United States, David MacNaughton, said that “Canada upholds our international trade obligations” and called the Canada-U. S. relationship “a model to the world.”

Days later, in an interview with Bloomberg, Canadian Prime Minister Justin Trudeau defended Canada’s domestic dairy policies, saying, “Let’s not pretend we’re in a global free market when it comes to agriculture.”

In an interview with The Washington Post on Monday, however, U.S. Commerce Secretary Wilbur Ross called the dairy dispute one of the “horrible aspects of NAFTA.”

At face, the dispute concerns a cheese-making product called ultrafiltered milk, which a number of U.S. dairy processors used to export to Canada. That trade began to taper off last year, when dairy farmers in Canada’s largest province, Ontario, dropped the price of domestic ultrafiltered milk to a point that priced out U.S. competitors.

In another industry, or in another market, such a move may not have seemed provocative. But Canada’s dairy market is one of the world’s most highly protected, and U.S. exports into the country are limited, to begin with. Under a system called supply management, the Canadian government controls how much milk dairy farmers produce and how much it sells for, guaranteeing a high price for domestic farmers. At the same time, the government limits foreign competition through aggressive import taxes.

The U.S. dairy industry claims the policy unfairly limits their access to a major market when they’re much in need of it. (The U.S. dairy market is modestly oversupplied, which has exacerbated the Canadian trade situation.) They also accuse Canadian farmers of manipulating and selectively applying domestic dairy rules to the disadvantage of the competition.

In the case of ultrafiltered milk, the U.S. product became competitive for two reasons: It is not highly taxed on import because it is a newer product developed after the passage of current trade agreements; and it was cheaper than the Canadian product, because Canadian suppliers had to charge those government-mandated minimums.

To avoid that, Ontario farmers essentially created an exception to the minimum price rule, allowing them to sell ultrafiltered milk and some other dairy products at far lower world market prices. Other provinces have begun to follow.

As a result, Canadian cheesemakers stopped doing business with several U.S. dairy processors, and 75 farmers in Wisconsin lost their processing contracts. The contracts were scheduled to run out on May 1, putting the farmers up against a hard deadline to find a new processor or close up their businesses.

Many farmers have since found new processors, but as many as 40 have not, said Luke Gartman, a seventh-generation Wisconsin dairy farmer whose contract was canceled in early April. Last week, Gartman was offered a contract with a local dairy cooperative.

“It’s a huge sigh of relief. Huge,” Gartman said. “But it’s bittersweet. There’s still quite a few farms that haven’t been signed up yet.”

Canada’s domestic dairy policies will remain a critical issue as long as they interfere with foreign trade, said Jaime Castaneda, the senior vice president of trade policy at the National Milk Producers Federation. This is an ongoing problem, with Canada constantly changing the rules of the game, Castaneda said.

“We have had a number of grievances with Canada over the years. This is nothing new,” he said. But now “the administration is very much aware and interested.”

A broad, bipartisan coalition of U.S. lawmakers have lauded Trump for his attention to the issue and urged him to act on his tweets.

Senate Minority Leader Charles E. Schumer (D-N.Y.) has promised to work with the Trump administration to “pressure and persuade the Canadians to reverse this unwise policy.” In Wisconsin, Sen. Tammy Baldwin (D) has asked the administration to buy up milk from the farmers who still don’t have contracts, pending a new agreement with the Canadians.

“The Trump Administration needs to make sure that Canada rescinds their unfair policy and plays by the rules,” Baldwin wrote in a statement. “ … Dairy farmers should not have their businesses ruined and lives upended as a result of Canada’s unfair trade practices.”