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Trump's latest target: Canada?

Rick Newman
Senior Columnist

If you thought our neighbors to the north were all chill and chummy, think again.

President Trump, fresh from a visit to Wisconsin, told reporters on Thursday that certain Canadian trade practices are a “disgrace.” Canada, it turns out, recently lowered prices for a particular class of domestically produced dairy products, making them cheaper than imports from states such as Wisconsin and New York. That, in turn has led to the cancellation of some big contracts with family farmers in those states, and others. An industry group estimates the spat could cost American farmers $150 million, and force some of them to sell their cows.

“What happened to our dairy farmers in Wisconsin and New York State – we’re not going to let it happen,” Trump said. “The fact is, NAFTA, whether it’s Mexico or Canada, is a disaster for our country. It’s a disaster. It’s a trading disaster.”

Some people forget that the North American Free Trade Agreement, which Trump has blamed for lost jobs, falling incomes and a bunch of other problems, involves not just Mexico, which Trump railed against while campaigning last year, but Canada, as well. Although it’s a free-trade deal, NAFTA still allows some tariffs and other types of protections on various categories of products, which is stipulated in the agreement. And products that were developed after NAFTA went into effect in 1994 sometimes fall into a grey zone where they’re not subject to tariffs that apply to other, similar products that did exist at the time.

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

That appears to be what happened with a dairy product called ultrafiltered milk, which contains protein and fat products used to make cheese. Ultrafiltered milk was developed after NAFTA went into effect, and American product has been flowing into Canada for several years, subject to none of the tariffs that apply to other dairy products. Several Canadian provinces recently lowered the price of domestically produced UF milk, making it cheaper than the American version. Those changes are due to go national in Canada soon. Canada also protects its dairy industry through a “supply management system” meant to keep prices higher than market forces might otherwise determine.

The US dairy industry claims the recent price moves by Canada represent an illegal trade protection, similar to a tariff. On April 12, the entire Congressional delegation from Wisconsin signed a letter to Commerce Secretary Wilbur Ross and others in the Trump administration urging them“to take immediate action to address this dire situation where apparent unfair trade practices are putting Wisconsin dairy farmers’ livelihoods at risk.” In response, Trump has lumped the dastardly Canadians with other countries, namely Mexico and China, that he feels are cheating on trade deals and hustling American workers out of their jobs.

Worth knowing: Canada sees it differently.

“It’s not Canada that’s the challenge here,” Canadian Prime Minister Justin Trudeau said recently, pointing out that Washington protects agriculture just as Ottawa does, and that the United States has a $400 million trade surplus in agriculture with Canada. “Let’s not pretend we’re in a global free market when it comes to agriculture,” Trudeau said, meaning that just about every developed nation protects farmers viewed as indispensable pillars of national identity. Other Canadian politicians have argued that unfiltered milk from America has been getting a free ride in Canada, since it has been exempt from tariffs meant to apply to all dairy imports. Some also argue that American dairy farmers simply produce more milk that consumers demand, and it’s not Canada’s job to sop up the excess.

For the farmers on either side of the border, this dairy skirmish is a big deal that directly affects their livelihood. But there’s a broader point, as Trump continues to promise that his grand effort to revamp NAFTA is coming soon, and will be terrific. Trump has bitten off a gigantic piece of gristle with his promise to revamp NAFTA or withdraw from the deal, and he can’t tweet-bash Canada—or even Mexico, for that matter—and expect rapid acquiescence. NAFTA covers thousands of products, and the whole point of more-or-less-free trade is to eliminate petty, one-by-one disputes over import tariffs on every single thing that crosses a border. (Anybody who wants to check for themselves can read the whole text of NAFTA here.)

A sign featuring an image of Canada’s Prime Minister Justin Trudeau is seen as dairy farmers protest against imported milk products in front of Parliament Hill in Ottawa, Ontario, Canada June 2, 2016. REUTERS/Chris Wattie

If Trump wants to fight with Canada over ultrafiltured milk, then why not fight over powdered buttermilk (tariff item 0403.90.10), egg albumin (tariff item 3502.10.10), or whey powder and modified whey powder (tariff item 0404.10.10)? And those are just a few items in the dairy category. There are dozens more, and dozens of other categories. For every producer in America who feels he’s getting a raw deal on a given product, there’s one in Canada and Mexico who feels the same way about a different product. Litigious trade spitballers could spend many lifetimes fighting over tariffs and retaliatory tariffs, product-by-product, while the movement of goods atrophied and producers waited for waited desperately for litigation to end so somebody might buy their stuff.

Trump earned a few nominal victories at the start of his presidency when he tweet-blasted companies such as Carrier, Ford and General Motors, criticizing them for conduction operations in Mexico. Most companies targeted by Trump ginned up announcements touting investments that create jobs in America, even if those “announcements” were rehashed news of plans already on the books. Trump, typically, tweet his approval and claimed credit for the new jobs, with the whole kabuki seeming to do no real harm.

Canada is unlikely to play that game. Like Republican members of Congress Trump has struggled to corral, Trudeau and other Canadian politicians don’t answer to Trump. They answer to their own constituents in Canada, and that includes farmers happy with the new rules on ultrafiltered milk imports from America. Canada has voters too, and Trump will never be on the ballot there.

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Rick Newman is the author of four books, including Rebounders: How Winners Pivot from Setback to Success. Follow him on Twitter: @rickjnewman.