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Why the fuss about Canadian trade? It comes down to milk

WASHINGTON – To hear President Trump tell it, Canada is one of America's archvillains when it comes to trade. But the overall numbers show something different.

Canada sold about 6 percent more goods in the U.S. last year than American companies sold north of the border, federal figures show. In comparison, China – America's leading trading partner – sold nearly three times as much stuff in America last year as America was able to peddle in the once-forbidden kingdom.

In fact, of America's 15 leading trading partners, 11 had worse trade imbalances, in percentage terms, with the United States than Canada did last year. Most were far worse.

So why would Trump pick on Canada?

Chalk it up to a product that, in total, makes up less than 0.2 percent of the trade between the two countries: milk.

"In a big economy like ours, this is kind of on-the-margins," said Christopher Sands, director of the Center for Canadian Studies at Johns Hopkins University.

The dairy trade

A deep dive into U.S. import and export data shows that Trump is turning a comparative drop in the economic bucket into a trade battle between two bordering countries.

The United States exported $51 billion worth of its top export product, vehicles, to Canada last year, federal figures show. That's 138 times more that it sent northward in dairy products.

In dairy, a cutthroat U.S. business versus a Canadian cartel

And yet the U.S. actually exported nearly three times as much in dairy products to Canada last year than it received in return.

The dairy trade looks even smaller if you look at what's heading in the other direction. Just look at America's biggest import from Canada last year: mineral fuels. America took in $71 billion of that stuff from Canada last year – 583 times more than it bought in Canadian dairy products.

Why, then, all this fuss about milk?

Trump said it's a matter of fairness.

"Canada charges the U.S. a 270% tariff on Dairy Products!" Trump tweeted earlier this month. "They didn’t tell you that, did they? Not fair to our farmers!"

Canada does set a strict quota on imported dairy products and charges triple-digit tariffs, ranging from 241 percent to 295.5 percent, on anything above the quota.

But American and Canadian trade experts say there could be other reasons for Trump's sudden rage at the Great White North.

Domestic politics could actually be Trump's real motivation for attacking the Canadian dairy industry, said Eliza Patterson, a former federal government trade attorney who now teaches international trade law both in the United States and in France.

She noted that Trump's tariffs on Canadian, Mexican and European Union steel and aluminum prompted a round of retaliation aimed at America's farm belt. Soybeans, wheat, corn and rice rank among the American products that could now face tariffs when shipped overseas.

"All the stuff he's done has annoyed the farm community, so he wants to show he's doing something for farmers," Patterson said.

A fuller picture

Trump said he recently placed tariffs on Canadian steel and aluminum products in response to Canada's dairy tariffs, but trade experts say that even focusing on those two metals misrepresents the real trade picture between the two countries.

America did have a trade deficit on steel with Canada in 2017, taking in 5.8 million metric tons of Canadian steel while shipping only 4.8 million metric tons northward, according to the International Trade Administration.

And that was part of a larger trade deficit with Canada – when you look at only goods rather than goods and services. By that measure, the U.S. took in $17 billion more in Canadian products than it shipped to the Great White North last year.

But trade experts say that number underplays the real story in international trade. Remember that all sorts of American service companies, from software developers to engineering firms to architects, do work in Canada, too. When you count their work, the Office of the U.S. Trade Representative said that America actually had an overall trade surplus with Canada last year amounting to $8.4 billion.

"If you include services, trade between the two countries is roughly balanced," Royce Mendes, senior economist at CIBC World Markets, told CBC. "Either way, most of the goods surplus we have with the U.S. is related to energy. I'm guessing most Americans wouldn't want us to turn off the taps and cause U.S. fuel prices to skyrocket."

Meantime, Susan Ariel Aaronson, research professor of international affairs at the George Washington University, worries that Trump's narrow focus on dairy, steel and aluminum will hurt the economy.

"One sector benefits when another sector does not," she said. "It's a form of favoritism."

What's more, Aaronson noted, Trump's efforts are focused on boosting older industries that have been shrinking, rather than the modern technologies that will form the basis of future international trade.

"If we can't deal with steel, what are we going to do when three-D printing and artificial intelligence come along?" she asked.

The biggest picture

Canada is America's second-largest trading partner, but far from our nation's greatest trade nemesis, according to experts who almost always single out China as the biggest trade villain.

That's why Trump's announcement earlier this month to slap 25 percent tariffs on some Chinese technology products came as welcome news to many in industry.

"China’s industrial subsidies create severe challenges for growing our business," said Greg Owens, CEO of Liberty Tabletop in Oneida County, the only remaining flatware manufacturer in America. "We support the administration’s tariffs for China’s technology theft and encourage further action to protect America’s manufacturers and agricultural producers from predatory trade practices."

America's trade deficit with China is 21 times bigger than its shortfall in traded goods with Canada, and U.S. manufacturers say Chinese companies are guilty of all sorts of violations that no Canadian company would every perpetrate. For example, Universal Electric said it discovered last year that a Chinese company was basically copying designs from the Maryland company's engineering team. And Charlotte Pipe & Foundry Co. of North Carolina said it discovered that a Chinese company stole and used its logo.

And while no country in the world gets accused of intellectual property theft like that quite as much as the Chinese, in percentage terms, America also has triple-digit trade deficits with a number of other nations, including Japan, Italy, Ireland and Russia.

But instead of focusing on that, Trump is focusing on narrow slivers of the economy, and trade experts just don't understand why.

"None of what he's doing makes sense for the nation as a whole," Patterson said.

Trump's trade moves have won of praise, though, from members of Congress whose districts include plenty of dairy farms – including those from New York, the nation's third-largest dairy producer.

"When one of the largest dairy centers in America is in our backyard, we've got to pay attention to that," said Rep. Tom Reed, a Republican from Corning who represents much of the Southern Tier. "All we're looking for is reciprocity, for fair trade."

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