Here’s what’s behind the US-Canada dairy spat that has Chuck Schumer agreeing with Trump

Donald Trump.
Scott Olson/Getty Images

President Donald Trump whipped Canadian lawmakers into a froth this week, accusing the country of taking advantage of US dairy farmers and calling for an overhaul of the North American Free Trade Agreement.

“What they’ve done to our dairy farm workers is a disgrace. It’s a disgrace,” Trump told reporters in the Oval Office on Thursday.

His comments followed a Tuesday incident in Wisconsin, where his speech on the “Buy American, Hire American” executive order devolved into a rant hammering Canada’s dairy supply management system:

“We’re going to get together and we’re going to call Canada, and we’re going to say, ‘What happened?’ And they might give us an answer, but we’re going to get the solution, not just the answer. OK? Because we know what the solution is,” he said.

In fact, American lawmakers have had extensive communication with their Canadian counterparts over the past year. They’ve not only called Canada, but written Canadian Prime Minister Justin Trudeau and met with his cabinet officials about the country’s dairy pricing policies. Even former President Obama privately complained to Trudeau that the country’s policies were harming US exporters, according to the Canadian Press.

But no solutions have emerged, and lawmakers from each country appear to be gearing up for souring trade negotiations, in which a showdown over ultra-filtered milk classification seems to be inevitable.

Dairy pricing is a dispute that has appeared to bridge traditional US party lines, creating an unlikely alliance between Trump, New York Democrats Gov. Andrew Cuomo and Sen. Chuck Schumer, and Wisconsin Republicans Gov. Scott Walker and House Speaker Paul Ryan.

Here’s what’s behind Canada’s contentious dairy regulations:

Where did the dispute begin?

Farmer Chris Ryan walks with his cow Ninja during a protest against imported dairy products in front of Parliament Hill in Ottawa, Ontario, Canada June 2, 2016.
Reuters/Chris Wattie

Americans have long been complaining about Canadian dairy production. The country uses a supply management system to regulate dairy production and pricing, and it provides regular quotas that monitor supply and demand and helps prevent surpluses and deficits.

Last year, Canada implemented a policy that created a new class of milk prices for ultra-filtered milk, a liquid, high-protein concentrate sometimes used to make products such as cheese and yogurt. Canada lowered the prices for this milk class, so as to incentivize domestic ultra-filtered milk and better compete with the US-produced imports.

The American dairy industry did not take kindly to these developments, and argued that the policy violates NAFTA. The Canadian dairy industry has shot back that the milk reclassification policy did not change import rules nor did it impose any import taxes.

“Canada upholds our international trade obligations. Under the North American Free Trade Agreement, the US has duty-free and quota-free access for milk protein substances, including ultra-filtered milk,” Canada’s ambassador to the US David McNaughton wrote in a letter to the governors of New York and Wisconsin.

“This duty-free and quota-free access has not changed.”

How did this affect the US?

Dozens of dairy producers in Wisconsin and New York say they’ve been affected by the Canadian policy. Just last week, Grassland Dairy Products cut contracts with about 75 Wisconsin farmers, saying they had lost access to the Canadian market. That access was worth $100 million per year, according to Bloomberg.

The New York-based Cayuga Milk Ingredients also told Bloomberg it had lost all of its Canadian exports, which comprised roughly 30% of its overall sales.

New York Governor Andrew Cuomo implored Trudeau in a letter to develop a national agreement averting what he said would be a $50 million market loss for the state’s dairy industry.

“New York’s dairy sector is an essential part of our agricultural industry, and these regulations could have devastating effects on our dairy farmers and their families,” Cuomo said.

“I urge our Canadian neighbors to reconsider these potentially harmful regulations and to continue our courteous, mutually beneficial trade relations.”

The pricing policy has been viewed so negatively by Americans that even Sen. Chuck Schumer tweeted praise for Trump’s get-tough approach to Canada:

What has Canada’s response been?

REUTERS/Chris Wattie

Although Trump’s harsh comments came as a surprise to Canadians, lawmakers have held steady on their milk pricing policy and have vowed to better explain it to the Trump administration when trade negotiations begin.

“The US has a $400 million dairy surplus with Canada, so it’s not Canada that’s the challenge here,” Trudeau said Thursday in an interview with Bloomberg.

“Let’s not pretend we’re in a global free market when it comes to agriculture … We have a supply management system that works very well here in Canada. The Americans and other countries choose to subsidize to the tune of hundreds of millions, if not billions of dollars, their agricultural industries including their dairy.”

Ambassador MacNaughton, too, has taken pains to express that Canadian regulations are not the cause of the US dairy sector’s losses. He noted in his letter to Cuomo and Walker that the US-Canada trade balance “massively favors the US” by a five-to-one margin, and that global milk overproduction, not Canadian policies, are the problem.

“Dairy farmers globally, and not just in the US, are facing many challenges,” he wrote to Cuomo and Walker. “In particular, both Canadian and American farmers have been dealing with international pressures of low world prices, and a surplus of skim milk solids.”

Canadian dairy farmers, for their part, have suggested the US is “scapegoating” Canada.

“I feel for the American dairy producers. They’re going through a tough time and I think they’re looking for someone to blame, and why not Canada?” Ottawa farmer Peter Ruiter told CBC.

What comes next?

Canadian Prime Minister Justin Trudeau (R) is greeted by U.S. President Donald Trump prior to holding talks at the White House in Washington, U.S., February 13, 2017.
Reuters/Carlos Barria

Trump’s comments on Thursday suggested that dairy pricing isn’t the only trade-related grievance the US will bring up with Canada – he could also pick a fight over energy policies, and escalate the long-fought battle over softwood lumber.

Trump said he plans to move “very, very quickly” on negotiations with Canada and will have a more detailed plan over the coming weeks.

Meanwhile in Canada, lawmakers appear unsure over whether to take Trump’s threats seriously. Trump’s recent complaints come as a sharp contrast from the warm greeting he extended to Trudeau during his Washington visit in February. Trump declared to media at a joint press conference that the US-Canada trade relationship would only require minor “tweaking.”

“We’re not going to overreact,” Trudeau told Bloomberg. “We’re going to lay out the facts and we’re going to have substantive conversations about how to improve the situation.”