The Lazy Economist: What's the United States' beef with Canadian dairy?

Looking into the industry where Trump is trying to gain economic power

President Trump harbours resentment towards Canada’s high tariffs on international dairy products.
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President Trump seems to have a “huge” problem with Canadian dairy—as if there's anything to hate about cheese and ice cream.

Canada’s high tariffs on international dairy products have created a rift in its trade relationship with the United States. With tariffs—or taxes—on some non-domestic goods hitting as high as 270 per cent, American farmers are finding it difficult to sell dairy to nearby Canadian consumers. 

While setting boundaries on the Canadian dairy market's accessibility to the US helps keep domestic dairy prices steady, it’s resulted in a struggle for economic power between the countries.  At the G7 Summit in June, Trump made as much clear.

For all this to make sense, you first need to understand the trade balance that exists in every country. It sets the rules of the whole international trade game.

A trade balance is the measure of exports to imports. If you think of a country as one person, exports would be like that person making money and imports would be them spending money.

Generally, every country hopes to make more money than they spend. That's why a common goal is to have a trade surplus, in which they export (sell) more than they import (buy). 

The flip side of a surplus is a deficit, where imports are greater than exports.

It's easy to miss the fact that, by design, not every country can run a trade surplus. After all, if you're selling an export, another country will have to buy it and act as an importer.

Trump views international trade as a game, and he wants to be the winner. While the United States runs a trade surplus with Canada in dairy, it has a trade deficit in merchandise generally—it imports more merchandise from Canada than vice versa. Selling more dairy could possibly make a dent in that merchandise deficit.

The reason Trump's at odds with dairy specifically is because of the firm grip Canada has on the industry.

The Canadian government limits the supply of outside—think international—dairy to keep the good’s domestic price stable. This works because if the supply of milk was to increase, prices would drop. 

Consider if you wanted to sell a textbook you bought last year for $75. If there's 10, 20, or 100 other students selling the same textbook for $50, you can't hike up the price by $25 and expect other students to buy from you.

By enforcing high tariffs on milk imports into Canada, the supply and price of milk stay steady because it's cheaper to buy milk domestically.z

Trump’s angry with this strategy because it makes it more difficult for American dairy farmers to sell their products to Canadian consumers. 

His anger might seem justified—not being able to sell without significant barriers to a large, nearby market like Canada is difficult. 

But this is where Trump appears hypocritical. He fights for access to our dairy market, yet taxes Canada heavily when it tries to export products into other American markets, like softwood lumber.

There's nothing really surprising about his behaviour—every world leader usually places their own country's priorities above another's. 

The surprising part is that Trump expects Canada to not respond in the same self-interested manner that he would.

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