Washington will target Canada’s dairy support system

Significance

Trump has attacked Canada’s system of supply management and imposed a 20% tariff on Canadian softwood lumber in his first major trade action. This signals the opening moves in a renegotiation of NAFTA and highlights Canada’s vulnerability to US protectionism. Global overproduction of dairy products has led to accusations from US producers, as well as Australia and New Zealand, that Canada is not honouring its commitments under trade rules.

Impacts

• US pressure on NAFTA may lend momentum to Ottawa’s trade talks with Beijing.
• Trump is likely to overstate the economic impact of international competition in a bid to consolidate rural support.
• Slowing Asian demand for dairy products amid overproduction could expose higher-cost producers to significant market headwinds.
• Canadian exporters will benefit from Trump-related downward pressure on the Canadian dollar.