How Much of a Trade Irritant Is Supply Management as Trump Rails Against Canada’s Dairy Tariffs?

Trump once again cited supply management in his latest tariff threat to Canada, but U.S. exporters aren’t even filling their current trade agreement dairy quotas.

Is Canada’s supply management system of dairy and egg production a major stumbling block in current negotiations between Prime Minister Mark Carney and U.S. President Donald Trump?

Trump has certainly mentioned the Canadian dairy sector’s protective policies when airing his grievances about trade relations with Canada. However, he hasn’t opposed it with the same vigour as he recently opposed Canada’s Digital Services Tax (DST).

A filing deadline for the DST—which would have cost American tech giants like Amazon and Google billions in taxes to operate in Canada—was set to come into effect during the trade negotiations on June 30, making it a more visible target for Trump. But how strongly U.S. industry is pushing Trump to target Canada’s supply management, and whether he has other priorities, is also a factor to consider.

It’s impossible to know for sure because the months-long negotiations have unfolded with essentially no details disclosed from either side and no substantiated leak on the proceedings.

What the last few months have proven is that Trump’s trade strategy is multi-layered and unpredictable. It’s also been effective at getting one Canadian trade irritant out of the way, with Carney pledging to rescind the DST after Trump pulled out of negotiations in late June.

Ottawa has committed and legislated to defend the supply management system in future trade negotiations—a system that has been a longstanding trade irritant across different U.S. administrations.

Supply management was established in the 1970s to control the production and importation of dairy, eggs, and poultry, in a bid to stabilize prices and protect the local industry.

Trump has been quite vocal about the resulting tariffs the system has imposed on U.S. farmers. It was one of the few elements he mentioned in his letter to Carney dated and released July 10, accusing Canada of charging “extraordinary tariffs” of “up to 400%” on U.S. dairy farmers.

The president, however, made no specific demand to be granted greater access to Canada’s dairy market or for a reduction of dairy tariffs.

Trump said in the letter that U.S. tariffs on Canada would be increased from 25 percent to 35 percent on Aug. 1 because Canada had retaliated against his trade actions and failed to “stop drugs from pouring into our Country.” He added he could consider adjusting his stance if Canada helps to ”stop the flow” of fentanyl.

The extent to which supply management acts as a trade irritant is difficult to determine. While Trump has openly issued a request regarding fentanyl, he has simultaneously avoided a specific dairy tariff request.

In an interview with CBS earlier this week, U.S. Commerce Secretary Howard Lutnick repeated Trump’s comment about keeping a 25 percent tariff on Canada if it doesn’t “stop this fentanyl and close the border.”

But he added: “The president understands that we need to open the markets. Canada is not open to us. They need to open their market. Unless they’re willing to open their market, they’re going to pay a tariff.”

During his Senate confirmation hearing in January, Lutnick took questions from Democratic Senator Tammy Baldwin, who expressed concern about the impact of Trump’s tariff agenda on the dairy producers in her state of Wisconsin, who could see retaliatory tariffs from other jurisdictions.

Lutnick replied that Canada “treats our dairy farmers horribly,” adding he would make sure Baldwin’s dairy farmers “do much, much better in Canada than they’ve ever done before, and that is a key focus of this administration.”

Trade Irritant

Canada’s supply management system has been a longstanding trade irritant for the United States, whether under a Democratic or Republican administration.

The U.S. trade representative’s 2015 report on foreign trade barriers during the Obama administration, for example, says supply management “severely limits the ability of U.S. producers to increase exports to Canada above TRQ [tariff rate quota] levels and inflates the prices Canadians pay for dairy and poultry products.” The 2025 report under the Trump administration carries the exact same sentence.

In the following years, Washington launched formal protests under the trade agreement, claiming that Ottawa was not abiding by its obligations in its allocation of dairy tariff rate quotas. These quotas determine the quantity of products that can enter the country under low or no tariffs, while quantities above that amount are slapped with a high surtax.

A USMCA panel in 2023 sided with Canada in the latest dispute, after which the Biden administration vowed to continue to work on fixing the issue for U.S. dairy farmers.

‘Wedge Issue’

There are some who have expressed doubts that the United States is really pushing for increased access to Canada’s dairy market, and may instead be using the matter as a negotiating tactic to accomplish other objectives.

Sylvain Charlebois, director of the Agri-Food Analytics Lab at Dalhousie University, says he doesn’t see a strong economic case for the United States to push for more market access, especially now with American products not being favoured by Canadians.

“Politically, President Trump knows very well that this is a very important wedge issue in Canada, and he’s using it in order to get what he really wants, and I suspect it’s around natural resources,” Charlebois told The Epoch Times in an interview.

Charlebois said that current dairy tariff rate quotas are not even close to being filled by U.S. exporters under the USMCA.

“This is more of a Canadian problem than anything else,” he said, noting that Ottawa had offered up to $1.7 billion to dairy farmers in compensation for the USMCA trade deal granting more access to the United States.

“So the biggest victims are again taxpayers and consumers, not necessarily Donald Trump and Americans,” he said.

Not a ‘Smokescreen’

According to Eric Miller, who heads a cross-border consultancy firm on trade, supply management is a real concern for the United States rather than merely being a “smokescreen.”

“This is something real that they want to see significant changes to,” Miller, president of the Rideau Potomac Strategy Group, told The Epoch Times. He said this has been a bipartisan issue, including for Senate Minority Leader Chuck Schumer, who represents the dairy-producing state of New York.

Miller said the Trump administration has not been specific on what changes it wants to see to supply management as it pursues open markets.

“Very much their goal going in is a full elimination of tariffs on U.S. dairy products going into the Canadian market,” he said, adding that “for a wide variety of reasons, that’s something which is politically unpalatable in Canada.”

Supply management is backed by a powerful lobby, and federal politicians of all stripes have vowed to protect the system. Carney said a number of times it would not be on the table during trade negotiations with the United States.

Parliament also passed Bill C-202 in June to protect supply management in trade agreements, with provisions not allowing the minister of foreign affairs to make commitments that would increase tariff rate quotas or reduce the tariff rate on quantities of goods over quota.

Miller said unwinding the system is not only politically unfeasible, but financially complicated because banks have extended billions of dollars in credit to dairy farmers, with the quota they hold being used to underpin those loans. Quota for a single cow can cost more than $30,000, meaning a farm with 60 cows would hold a $1.8 million quota.

“If the quota all of a sudden loses value, then there’s a whole financial issue that needs to be developed,” he said.

Miller also noted that protecting supply management at all costs in trade negotiations could have negative impacts on other sectors of the economy—possibly the same sectors facing government concessions that result in reduced market access.

Reform

On the flip side, if the Canadian market opens up to foreign dairy products and the “core system” of supply management ends, Charlebois said farms east of Toronto would go out of business because they’re “highly inefficient and not very competitive.”

“I would imagine that some farms west of Toronto would be able to survive and compete, not east of Toronto,” he said. “Most of them would basically disappear, or would basically shift westward, allowing Manitoba, Saskatchewan, Alberta, and B.C. to produce the milk that we need in Canada.”

Charlebois has been a vocal critic of how the dairy sector is managed in Canada, but he said supply management has benefits, such as increased biosecurity. He said with farms not necessarily competing against each other, they are more likely to report health issues with animals.

“That’s certainly one huge advantage, which is why I’ve never been in favour of ending the quota system,” he said. “I think it needs to remain there, but we also need to make sure that our system actually becomes more competitive ... in an open market.”

He recommends a number of reforms and a 20-year plan to increase the sector’s competitiveness. This would include a way to handle surplus production to avoid waste, which he pinned at 600 million to 1 billion litres of milk a year.

“The world will need more milk and butterfat, and we’re in no position to take advantage of that opportunity, and we should,” he said.

New Zealand Gains Greater Access

The United States has not been the only country to protest how Canada manages dairy tariff rate quotas (TRQs) under free trade agreements. The United Kingdom walked away from free trade talks with Canada last year, with access for British cheese being a stumbling block.

One international dairy dispute was resolved recently. New Zealand had launched a dispute settlement process against Canada under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership in 2022.

Ottawa and Wellington announced they settled the matter last week, with New Zealand’s trade minister saying the deal will provide up to $129 million annually in export value to dairy exporters from his country.

Ottawa said part of the deal entails making “minor” policy changes to TRQ management. Those changes include implementing a mechanism to have unfilled quotas moved to an on-demand allocation system.

Cabinet ministers responsible for trade and agriculture said the settlement “will not negatively impact Canada’s dairy industry or supply management.”

Dairy Farmers of Canada (DFC), a major industry group, did not express a stance following the settlement with New Zealand.

“DFC supports a rules-based trading system and expects that the Canadian government will continue to uphold our national food security and food sovereignty,” the group said in a statement to The Epoch Times.

The group had welcomed the passage of legislation in June to protect supply management in trade agreements, saying it “equips Canada to continue to expand market opportunities for Canadian agriculture and agri-food exports, while safeguarding the food sovereignty of our country.”

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