What Canada stands to gain from ‘America First’

by Henry Gray (AIMS on Campus Student Fellow)

 

A central plank of Donald Trump’s platform from the day he announced his candidacy has been what he euphemistically refers to as his commitment to “fair trade,” by which he means renegotiating free trade agreements like NAFTA so that they are more favourable to American industry.

One of the key requests from the American side of the negotiation table so far has been to ask Canada to open up our protected dairy market. Canada’s dairy industry is regulated by a deeply protectionist scheme known as ‘supply management’ that sets the price of milk (as well as cheese, eggs, chicken, and turkey) based on intended usage, bars most external produce with exceedingly high tariffs, and even decides how much Canadian farmers are allowed to produce. The technical term for such a competition-restricting arrangement is a ‘cartel’.

Now, as part of the ongoing NAFTA negotiations, the United States is asking Canada to wind up the supply management regime within the next 10 years. Canada should acquiesce to this demand. Not only will this allow us to gain concessions from the US elsewhere, but liberalizing our dairy sector will allow Canadians to pay far less for basic nutrition and will also allow Canadian producers to compete in the much bigger global markets. Rather than worrying about American dairy producers coveting the Canadian market, we should turn our attention to other, larger markets, such as the burgeoning Asian market.

Our Antipodean cousins in Australia and New Zealand both formerly operated under the supply management system, and both countries abolished this policy – in 2000 and 2001, respectively. The dairy sector in both countries is flourishing today as a consequence of massive growth in exports to the growing markets that Canada could and should be capitalizing on.

Those who claim that the end of supply management will result in a doomsday scenario don’t have the facts or history on their side. Similar gloomy predictions were pronounced about our wine industry, to take but one example, around the time of the original NAFTA negotiations. The climate and soil of the United States was said to lend American producers an unfair leg-up over Canadian producers. The record shows, however, that Canadian producers, far from finding themselves uncompetitive, take advantage of the opportunities of the free market when they are presented with them. Not only have Canadian producers profited significantly from greater access to markets, but greater competition means that Canadian consumers have gotten to enjoy better and better wine over the years.

Liberalizing our wine industry was a true win-win. The reform of this industry has led to better outcomes for all involved. There is no reason to assume that the same will not hold for our dairy industry. Some may object that our wine industry’s transition to the open market required transition assistance and compensation, and this could very well be appropriate in the case of the dairy industry too. In the long run, however, the gains from the free market have far outweighed the losses. Rather than battening down the hatches in an effort to “protect” our industry, Canada should look for opportunities in the NAFTA renegotiation and confidently embrace the future.

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