“Nobody knows that Canada is charging our dairy farmers,” U.S. President Donald Trump complained Friday in the Oval Office. “They have 270 per cent tariffs. Nobody knows that. Nobody knows it. They have up to 400 per cent. They have a couple of tariffs at 400 per cent. Nobody knows that. Nobody talks about that.”
In fact some people have talked about it a lot, most prominently Trump himself and his Commerce Secretary Howard Lutnick. Indeed, one of the issues complicating the negotiations over tariffs between the U.S. and Canada is that the president is telling millions of Americans that Canada routinely charges exorbitant tariffs on a range of U.S. goods from cars to clothing.
The Trump administration has spread disinformation about the true terms of trade between the two nations as a pressure tactic, falsely presenting the “over-quota” tariff rates that are almost never charged as the normal rate.
Both Trump and Lutnick seem content to spread an apples-to-oranges comparison of U.S. and Canadian tariffs, implying that Canada’s over-quota tariffs are the direct equivalent of the U.S. day-to-day tariffs under the Canada-U.S.-Mexico Agreement (CUSMA) which are zero.
Ambassador fighting false claims
The reality is that over 97 per cent of U.S.-Canada trade in agricultural goods and over 99 per cent of trade in manufactured goods occurs under a zero-tariff rate, as Canada’s Ambassador Kirsten Hillman now spends much of her time patiently explaining.
The numbers often cited by the White House are in fact penalty tariffs that are only incurred when trade in certain items exceeds a certain volume, and rarely or never charged in practice. Most trade between the U.S. and Canada is not subject to any limitations of volume, but a small number of products are. The attention is often on dairy, explained Al Mussell, research lead and founder of Agri-Food Economic Systems, Inc., but the quota list goes wider than that.
“You could talk about other supply-managed products [chicken, eggs] in Canada, you could talk about sugar and peanuts in the United States,” he said.
The U.S. protects its sugar beet and sugar cane industry from outside producers through a tariff rate quota, as well as its cotton, beef and cereal farmers. Canada famously does the same for its dairy and poultry farmers. But it also issues an annual quota for wheat and barley and some other products.
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The quotas mostly cover niche areas of the U.S. and Canadian economies, some protected because of cultural or regional significance. For example, the U.S. has always put quotas on imports of brooms and whisks, despite one brief scare when American broommakers were accidentally left exposed to Mexican competition.
Prior to the creation of the World Trade Organization at the end of the 20th century, import quotas were hard caps. Today imports are allowed to surpass quotas, but are then subject to very high tariffs intended to render them uncompetitive.
“This is not an uncommon form of trade policy,” explained University of Calgary economist Trevor Tombe. “There are roughly 1,200 tariff rate quotas around the world.”
U.S. has over-quota tariff on tobacco
Trump and White House officials have often often presented the over-quota tariff rates charged by Canada as the going rate for normal trade, and omitted to mention their own over-quota rates that range as high as 350 per cent for tobacco (the single-highest tariff on the books affecting U.S.-Canada trade.)
“I think it is a selective piece of communication,” says Tombe.
Such messaging by the Trump White House is nothing new. During Trump’s first administration, his NAFTA negotiating team spread false claims about the balance of trade by misleadingly counting non-Canadian pass-through goods that entered North America through a Canadian port as Canadian-origin, in order to make the U.S. trade deficit with Canada appear larger than it really was.
If the goods were Chinese, the same goods were then counted again as part of China’s surplus.
In this second round of negotiations, Trump has repeatedly made claims about the U.S. “subsidizing” Canada for vast amounts, or claimed that the annual trade deficit is as high as $250 billion.
But it may be the lists of supposed Canadian tariff rates, which began to circulate soon after Trump’s inauguration, that have gained the most traction. The lists appear to have convinced some Americans that Trump is merely seeking parity with huge tariff barriers that Canada has long placed on American products.
False claims could prolong trade war
The widespread belief in the U.S. that Canada actually charges tariff rates of 200 per cent or more could influence Americans to be more supportive of the Trump administration’s position. They could be more tolerant of the financial losses and economic pain caused by a trade war if they believe it is being fought to redress such a lopsided imbalance.
“It’s misleading because it makes it sound like the United States pays this tariff. They do not,” said Mussel.
He said the U.S. government and trade lobbies “prefer to kick the door in rather than knock. I don’t know if there’s this idea that if we convince people that the Canadians really charge us 200 per cent or 250 per cent, that it justifies kicking the door in.”
As Canadian officials learned in the wake of the 9/11 attacks, when they had to spend years trying to correct misinformation that hijackers had entered the U.S. through Canada, it can be very hard to correct a false impression once it has firmly established itself in the American political conversation.
All of which is not to say that there are no issues around tariff rate quotas, which are the main impediments to free movement of goods across the U.S.-Canadian border.
‘Fill rate’ tells the tale
The “fill rate” is the clearest indication of whether a quota is actually standing in the way of trade. Do U.S. or Canadian exporters use up the quota available to them?
Most of the quotas that exist between the U.S. and Canada have low fill rates, suggesting they’re not a real impediment to trade. But some dairy quotas, such as the Canadian quota on imported ice cream and cheese, do tend to fill up.
“There is a reason why dairy is on the top of the list of all our trading partners,” says trade lawyer Mark Warner. “In the current trading environment, our partners are growing increasingly impatient with that.”
Warner says previous U.S. administrations may have been less aggressive than Trump, but were equally unhappy with dairy tariff-rate quotas, “and my guess is that on this point, our CETA and CPTPP partners — and the prospective U.K. partner — would agree privately,” referring to trade deals with European and Pacific Rim countries.
“It’s not irrelevant. It is a type of trade restriction,” agrees Tombe. “It wouldn’t be correct to say, oh, there’s no trade, therefore the tariff is irrelevant. So the question is what would trade volumes be if we had no tariff rate quota systems in place? And that’s tough to know.
“Almost surely trade volumes would be higher. That is why the United States, New Zealand and others do push for larger and larger quotas because there is a desire on the part of industry in those countries to export more. And so I think it’s fair to say that Canada maintains trade restrictions on dairy.”
‘We don’t really know what they want’
While theoretically limited in the same way (the U.S. also maintains tariff-rate quotas on dairy), the fill rates are much lower for southbound trade, says Mussell.
“The difference is the Canadian system is very much geared toward focusing on the domestic market. It’s not particularly export oriented,” he said.
In the U.S., on the other hand, dairy products are seen as export commodities in the same way canola is in Canada.
Mussel says that in normal times, the Canadian side would expect pressure to widen the access U.S. exporters have to the Canadian dairy market beyond the current 3.6 per cent, and would expect complaints about the Canadian import permit system.
Prime Minister Mark Carney said revenues from tariffs in Canada could be used to support Canadian business owners and workers who may be affected by the escalating trade war with the U.S. under President Donald Trump.
“Those are both things that I think are fairly standard, and we’d have to see how we could accommodate that. I think that the dairy industry kind of feels like they’ve made a lot of sacrifices in this regard already,” he said.
But he said these are not normal times. “The trouble is, we don’t really know what they want.”
Tombe says the flood of disinformation and false data can make it harder to achieve an agreement, particularly if U.S. officials find themselves responding to public pressure generated by their own dubious claims.
“That makes it harder to actually reach an agreement and work through the details, if they’re given marching orders that are inconsistent with the reality on the ground,” Tombe said.
