Christinne Muschi / Reuters

President Trump’s Twitter jab at Canadian Prime Minister Justin Trudeau—in which he publicly called the leader of an allied country “meek and mild,” plus “dishonest & weak”—spawned a mini–cottage industry of articles (including my own) on the fate of the U.S.-led Western world order. And at first glance it’s puzzling why Trump would pick a fight with Canada, of all places, just as he was departing a summit meeting there.

But in the same tweet he was pretty explicit about the source of his beef: It’s dairy. Referring to steel and aluminum tariffs he has imposed on Canada, he wrote: “Our Tariffs are in response to his of 270% on dairy!” He has a point. But Trump’s complaint obscures the fact that Canada has in the past been open to allowing in dairy imports in exchange for appropriate concessions; that Canada complains that the U.S. subsidizes its own dairy industry; and, perhaps most important, that while Trudeau, like all Western leaders, might need a close relationship with the United States, he needs to appeal to domestic political realities even more.

At issue is the Canadian supply-management system, which covers dairy, eggs, and poultry products. The system sets domestic production quotas and keeps prices stable, thereby guaranteeing farmers a steady income. And, in order to keep the supply stable, Canada blocks imports from other countries, including the U.S., by imposing tariffs—up to 270 percent on dairy products. About 80 percent of Canada’s dairy farmers are concentrated in two provinces, Quebec and Ontario, both of which are crucial to Trudeau’s political fortunes. (The system is by no means universally popular in Canada.)   

“It’s not about Trump and Trudeau,” Stephen Kelly, who served as the U.S. consul general in Quebec City and the deputy chief of mission in Ottawa, told me. “This has been an irritant for many years.”

Decades, in fact—and not just for the United States, whose dairy farmers would like access to the Canadian market, but also their counterparts in New Zealand and elsewhere. New Zealand had opposed Canada’s entry into the Trans-Pacific Partnership over the supply-management system, but Stephen Harper, the Canadian prime minister at the time, agreed to dismantle the system in exchange for TPP membership. When the U.S. withdrew from the TPP, one of Trump’s first decisions as president, Canada withdrew that concession—other countries withdrew their concessions, as well—in the hopes that it could be put back on the table in the future if the U.S. rejoins the pact and demands compromises from the others.

The Canadians aren’t entirely opposed to negotiating on the dairy industry if they are getting something in return: In its Comprehensive Economic and Trade Agreement with the European Union, Canada agreed to import European cheese without tariffs. From Canada’s point of view, it is worth it for nearly tariff-free access to the 28-member bloc that is the world’s largest economy.

“In a multilateral context, there was more to trade off. Now the problem is that Trump is dealing with this in a bilateral context where trade barriers are generally very low,” Christopher Sands, the director of the Center for Canadian Studies at Johns Hopkins University’s School for Advanced International Studies, told me. “Most tariffs are down to zero anyway. So, there’s not much for the U.S. to give in return for the change.”

It doesn’t help that the U.S. subsidizes its own dairy industry heavily—up to $22 billion in 2015, according to one study. “The Canadians say, ‘Hey, wait a minute. You subsidize milk, too,’” Kelly, who is now a research scholar at the Sanford School of Public Policy at Duke University, said. “You’ve got all sorts of support programs for milk.”

In other words, Canada props up its dairy industry through quotas that cap the amount produced, and imposes heavy tariffs on imports. The U.S. subsidizes its dairy industry, resulting in lower costs for U.S. consumers, but a supply glut.

“From a geopolitical point of view, the trouble with supply management is it's kind of in your face: ‘You cannot enter our market. You foreigners cannot enter our markets unless you pay tariffs of like 200 percent,’” Kelly said. “Whereas subsidies are more insidious. They … probably are anti-trade in some sense, but they’re not as glaring. … We do it more subtly.”

Those subsidies exist in the U.S. for the same reason Canada has a supply-management system: domestic politics.

Harper’s conservative government could make a concession on the TPP because, Sands said, his party had almost no parliamentary seats in Quebec, the province with the greatest concentration of dairy farmers; he was dealing with a budget surplus with which he could simply provide the farmers with cash payments; and, in return, he could offer Canadian dairy farmers access to foreign markets. Trudeau, on the other hand, doesn’t have these advantages: Quebec provides Trudeau his second-biggest bloc of seats, including his own, making him politically vulnerable if he infuriates dairy farmers. He has no obvious olive branch to offer the dairy industry. Perhaps most importantly, he's in a budget deficit.

“He doesn't have the maneuverability,” Sands said, “which isn’t to say that we couldn’t reach an agreement here, but the politics have changed and the dynamics have changed.” As have U.S. relations with Canada.

Sands said Trudeau took a strategic decision when Trump was elected that he was going to work with the U.S. president. The Canadian public, despite their dislike of Trump, supported their prime minister.

“He got lots of praise for that in that first year or so, but he got nothing in return: NAFTA is still unsettled, steel and aluminum tariffs are hitting him, softwood lumber tariffs are hitting him,” Sands said. “And I think what he's judged is ‘I'm getting nothing for being nice.’”

This could have political consequences for Trudeau, who faces an election next year. The election of Doug Ford, the populist conservative, as premier of Ontario is likely a particularly dangerous sign. Ontario, the province with the most parliamentary seats, has more to lose from the destruction of NAFTA than any other Canadian province. Its auto industry is also being threatened by Trump’s tariffs. Ford could prove to be a formidable critic ahead of the 2019 election. Trudeau’s rhetoric has changed during this time, as well. He went on NBC’s Meet the Press, saying his country was “not going to be pushed around” on trade by the Americans. And in his now-famous news conference after the G7 summit, he reiterated that Canadian tariffs on U.S. products would go into effect July. 1. “Canadians, we’re polite, we’re reasonable, but we also will not be pushed around,” he said. By all accounts, Trudeau’s response has been widely welcomed in Canada—even by his political rivals.

“I don't want to say panic is setting in, but there has been a strategic shift, and … so that's why Trudeau escalated, and Trump responded to the escalation by escalating again. It’s that classic Trumpian brinkmanship,” Sands told me. “We’re on a very bad track because I don't really see Trudeau having a lot of room to retreat, and Trump can change his mind any time, but he doesn't seem like he wants to right now.”

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