Trump’s Canada Export Numbers Are Off

President Trump is apparently angry about Canada’s dairy support policies. He would do well to open his Bible to Matthew 7:3-4. It’s the passage about focusing on a speck of sawdust in a brother’s eye, while ignoring the (wooden) plank in one’s own eye. For, indeed, the United States has a complex dairy support system of its own.

For example, U.S. milk prices are controlled by the federal government. That’s why you never see a sale on fluid milk at the supermarket.

Further, the United States has a complex system to control imports, with a view to limit imports as much as possible.

First, imports are restricted by a “tariff-rate quota.” Translation: the federal government sets quota limits on how much can be imported in a year. Various cheeses have their own quotas. Imports over the quota amount are subject to a high tariff.

That’s not all. The U.S. Department of Agriculture has a very complex quota licensing system; it controls who has access to the quotas. Note: the licenses have nothing to do with health or safety reasons. It’s just extra red tape for firms wanting to import dairy products.

The USDA’s rationale for their system is that it promotes a “fair and equitable allocation of the right to import” and will get the quotas filled. But a free market system, or better yet, an auction (as the right to import has value to a business), would reach the same goals without USDA’s granular examination of would-be importers and would involve fewer USDA employees.

If licenses were auctioned, it would decrease the federal debt as money from the auction would go to the U.S. Treasury. Granted, the debut would not decrease by a huge amount, but something is better than nothing! Further, firms paying auction prices for licenses would use them not only to cover the price but also to make a profit.

If one believes the White House’s rhetoric, it seems that despite USDA’s hair-hurting import system, we are awash in Canadian dairy products. I ran some numbers from the U.S. International Trade Commission’s database. The data tell a different story.

Let’s start with U.S. dairy exports to Canada (Under Chapter 04 of the U.S. Harmonized Tariff Code).

• 2015:  $382 million
• 2016:  $333 million
• 2015:  $335 million

Canadian dairy exports to the United States have been:

• 2015:  $158 million
• 2016:  $156 million
• 2017:  $192 million

Remove the political hype, and Canada appears to be a decent market for U.S. dairy products. And of the two trading partners, the United States is outperforming Canada in this sector.

Another sector with a dairy component is: “mixes and doughs” Consider your local chain donut shop. Its corporate purchasing office buys the donut dough in bulk. There may be milk solids and/or by-products in the dough, but the standout ingredient is sugar. Don’t believe me? Eat a donut and see for yourself.

Sugar in Canada is much cheaper than in America. As with dairy, USDA maintains strict control (via tariff-rate quotas) over sugar imports. Canada does not.

Sugar-containing products, however, such as donut doughs (duh!) from Canada generally enter the United States duty-free. However, if the product does contain dairy products, it becomes subject to a special dairy quota.

Let’s go back to the numbers. U.S. exports of mixes and doughs to Canada (under subchapter 1901 of the Harmonized Tariff System) were:

• 2015:  $194 million
• 2016:  $197 million
• 2017:  $204 million

Canada’s exports to the United States were:

• 2015:  $282 million
• 2016:  $310 million
• 2017:  $283 million

Where’s the outrage? There isn’t as the difference is relatively small, and the cause of Canada’s larger exports is due more to their cheaper sugar than any milk input.

One more thing: There’s an obscure category of “milk and cream with over 10 percent of sugar by weight.” (Just a guess, but if this product also has a high-fat content, then it’s going to Ben & Jerry’s in Vermont!) The Harmonized Tariff System pegs this product at 1901.90.69. U.S. imports of this product from Canada reveal:

• 2015:  $0
• 2016:  $0
• 2017:  $2.4 million

U.S. exports were zero for all three years. Again, it’s not about Canadian dairy products; it’s about Canadian sugar being cheaper.

Finally, does Canada have a supply management system? Yes. So does America, but it’s different. The U.S. version has federal “milk marketing orders” that set the price of milk, subsidized price insurance for dairy farmers, and USDA’s direct intervention in the dairy sector by purchasing milk and cheese to reduce supply and increase prices.

For example, last month, the USDA announced it was purchasing $50 million in fluid milk to reduce the milk supply and increase prices (the milk will go to emergency feeding programs). In October 2016, the USDA offered to purchase $20 million of cheddar cheese. And so on.

It all adds up to the “plank” in the U.S. eyeball as our negotiators sit with their Canadian counterparts to discuss dairy. Hopefully, our team has put the hype — and the plank — aside and is coming to terms with the realities of the U.S. and Canadian dairy support systems.

Joanne Butler was a professional staff member (Republican) at the House Ways and Means Committee and served in President George W. Bush’s administration. 

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