Ottawa avoided a trade setback. But Trump could come for supply management next

Dreams do come true. U.S. President Donald Trump wished for Canada’s tax on U.S. tech companies to disappear on Friday, and by Sunday, it had.

Mostly, there was a sense of surprise that the federal government would play such a valuable card this soon. The digital services tax (DST), which Ottawa was supposed to start collecting on Monday, was unpopular with the U.S. government and the tech giants it targeted — Meta and Amazon, for example — and, conveniently, not was especially liked by business groups at home.

By quashing it, Canadian negotiators paid a kind of toll on the road to a trade deal with the U.S. — in that it kept talks rolling. But the move could back Canada against the wall on the far thornier issue of supply management. 

“I think we can expect that they will be coming after us on [supply management] as well, because it has been a longstanding irritant,” said Fen Hampson, a professor of international affairs and a co-chair of the expert group on Canada-U.S. relations at Carleton University in Ottawa.

Trump has long objected to Canada’s supply-managed dairy system, complaining about what he characterizes as high tariff rates on U.S. dairy exports to Canada (more on that later). He made it an issue leading up to the 2018 negotiation of the Canada-U.S.-Mexico Agreement (CUSMA), but ultimately allowed that free trade deal to pass without addressing it.

Now, Trump is back to making a stink about our cheese. He claimed on Friday that Canada has charged U.S. farmers a 400 per cent tariff “for years” on dairy products. 

But when it comes to dairy, Trump’s wish won’t come true so easily, thanks to the recently passed Bill C-202, which forbids supply management from being used as a bargaining chip in trade negotiations.

The bill has been criticized because it potentially ties Ottawa’s hands if the U.S. president issues an ultimatum aimed at Canadian dairy — by extension, threatening to disturb Parliament which has, since the federal election, mostly set aside partisan differences in the face of Trump’s threats.

The added difficulty “has certainly registered with the White House,” said Hampson.

‘Tremendous’ power

Down south, the scrapped DST was hailed as a victory. Trump’s trade representative Howard Lutnick thanked Canada for removing it, calling it a “deal-breaker for any trade deal” with the United States, while White House economic adviser Kevin Hassett said removing the tax paved the way for to renew talks.

White House press secretary Karoline Leavitt seemed to gloat, saying that Carney “caved” to Trump’s demands and that it was a mistake for Canada to promise the tax in the first place.

But if there was any indication of what’s to come next, it was from Pete Hoekstra. The U.S. ambassador to Canada, speaking on CBC’s Power & Politics on Monday evening, said he believes Carney would push Parliament to put supply management back on the table if a deal between the U.S. and Canada depended on it.

“I have a strong belief that if … the prime minister and the president got to a trade agreement, and for whatever reason it included something that Parliament said ‘You can’t do that,’ the prime minister probably could find a way to get Parliament to do [his] will,” he said.

“Prime ministers and presidents, they’ve got a tremendous amount of power.”

If Trump really wanted to put economic pressure on Canada, “he could try this exact same tactic and say, ‘I’m going to walk away until supply management is gone,'” said Asa McKercher, a professor at the Mulroney Institute at St. Francis Xavier University in Antigonish, N.S. 

Trump’s numerous claims about Canada’s supply managed dairy systems are frequently inaccurate. High tariff rates on U.S. dairy only apply if exports exceed set quotas, and the U.S. has never come close to exceeding them (one U.S. dairy lobbying organization argues that this is because of the “protectionist measures” imposed by Canada). Below the quotas, U.S. dairy products are tariff-free under CUSMA.

While Canada’s dairy lobby welcomed C-202’s passage, some agricultural industry leaders argue that it stifles their industries in favour of bolstering dairy, and gives the country little wiggle room should Trump come knocking for more concessions.

“I think the Carney government is now getting into a position where the rubber is really going to hit the road,” said McKercher. “If you’ve given in on the digital tax, is that a concession that Mr. Trump will see as a concession and accept, or will Mr. Trump continue to push Canada and say, well, now what about supply management?”

‘Existential’ issue for Liberals 

He says this is “dangerous territory,” for the minority Carney government, which needs the support of other parties to pass its agenda. 

“If the current government looks like it’s going to introduce a bill threatening supply management, this could create a lot of political headaches.”

Bill C-202 was sponsored by Bloc Québécois Leader Yves-François Blanchet as a nod to the party’s base in Quebec where the dairy farming industry is heavily concentrated. The Conservatives are also looking to expand in the province, while maintaining their rural base in Ontario.

“This is where the issue becomes existential for the political fortunes of Carney’s Liberal government,” said Hampson.

“So that’s going to be a tough one. And I’m not sure there’s really any way to square that circle if the Americans decide to go after us on it.”

With three weeks left until the July 21 deadline for a new Canada-U.S. trade deal, it’s possible that talks between Trump and Carney will reach the finish line, says Lori Turnbull, a professor of political science at Dalhousie University. 

But with Trump upset about supply management, “it’s a question of is this going to be enough for him for a little while? How long?” she said. 

“Now that we’ve made a concession and Trump sees that as a win for him, is there an opportunity right now in this short period of time [where Canada can] move some things through where Trump feels like … a real free trade relationship and a new economic and security pact for Canada and the US is in the American’s interest too.”