Is Canada really to blame for US dairy problem?

It seems each day that President Trump has a new enemy, this time Canadian dairy production is the new victim of his fury, but is his anger entirely misplaced? The short answer is that it is not misplaced, but "tearing apart NAFTA is not going to help fix the current US dairy glut, in fact it might worsen it.
So what exactly is going on with US dairy? The answer is not quite as simple as Canada exporting more milk to the US. In fact Canada has a trade defect with the US for dairy. So what exactly is going on? Well a few days ago the Canadian government passed regulation which was more protectionist of Canadian dairy production. Canada has already had similar policies in place around dairy for some time, it is a system called supply management. It works like this, Canada determines the amount of domestic supply for dairy products and regulates foreign imports based on the degree of domestic demand in order to protect the Canadian dairy industry from foreign competition. The system does have its downsides, namely that milk is more expensive in Canada as a result. Additionally it may have caused a lower degree of efficiency in the Canadian dairy industry as the industry could rely on what amounts to a government subsidy.
This policy had implications on the US, not due to the fact that it caused more Canadian milk to be exported to the US, in fact the US has a approximately 400 million dollar trade surplus with Canada with regards to dairy products, in fact the problem with the Canadian policy was that it limited the ability of American dairy products to be sold in Canada. Recently however this policy has become increasingly extreme with regards to a product called "ultra filtered milk", what this product consists of I am unaware , but regardless it was apparently of some popularity in Canada and was bringing in significant revenue to farms particularly in Wisconsin (the so called cheese state). Canada introduced a change that resulted in an incentive being created towards the purchase of domestically produced "ultra filtered milk". This causes a number of farms in the US dependent upon exports to Canada to see a decline in profits to such an extent that reportedly milk was being thrown out at some farms due to lack of demand. In part because Wisconsin is a swing state Trump immediately directed his contempt towards the perceived source of these problems, Canada and as a result the current situation has arisen. Despite this Trumps threat's to change the NAFTA agreement are unlikely to help the plight of US dairy farmers. In fact they are far more likley to backfire. This is because increasing the degree of protectionism of NAFTA would only further prevent the ability of US farmers to sell in Canada and although it may damage Canadian dairy, this action, taken effectively out of spite would only amplify the effects of the current arrangement, which benefits neither party.

Comments

  1. What can I say...your blog's gonna be legen-dairy.
    Sorry...puns....

    ReplyDelete
  2. This comment has been removed by the author.

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  3. You know, I am always proud of you. I don't know at this age how can you write on such a subject. Any way very informative article. I will only say "Nazre Budd door".

    ReplyDelete

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