U.S.-Canada dairy trade faces significant disruption as both nations slap 25% tariffs on agricultural goods. The $1.2 billion cross-border dairy market hangs in the balance, with farmers bracing for steep losses on both sides. Canada’s latest $30 billion counter-tariffs mark a dramatic escalation in the trade dispute.
Summary:
A significant trade dispute between the U.S. and Canada has erupted as both countries impose 25% tariffs on agricultural products, threatening $1.2 billion in annual dairy trade. The conflict escalated on February 2, 2025, when Canada announced $30 billion in retaliatory tariffs, with plans for additional tariffs on $125 billion worth of goods later this month. The impact is severe on both sides of the border: U.S. dairy farmers face potential losses in their largest butter export market and plummeting milk prices. At the same time, Canadian producers struggle with oversupply and production disruptions. Government relief packages – $85 million from the U.S. and CA$ 250 million from Canada – cover only a fraction of projected losses, leaving farmers vulnerable as both nations brace for long-term market uncertainty and potential further escalation during the 2026 USMCA trade agreement review.
Key Takeaways:
- Both the U.S. and Canada have implemented 25% tariffs on each other’s agricultural imports, significantly impacting dairy trade.
- Tariffs disrupt North America’s long-standing integrated supply chains, creating market volatility for dairy farmers.
- U.S. dairy farms risk losing substantial sales to Canada, with an underfunded relief package exacerbating their financial challenges.
- Canadian producers face potential domestic oversupply and price drops, compounded by limited financial support from the government.
- Rising food costs and supply chain shortages are expected to impact consumers in both countries, and livestock prices will suffer.
- Upcoming negotiations and diplomatic efforts may shape future trade dynamics, with stakeholders stressing the need for urgent resolutions to protect the industry.
The U.S. and Canada have both imposed 25% tariffs on agricultural products. This move puts $1.2 billion in yearly cross-border dairy trade and interconnected supply chains in North America are at risk. Today, on February 2, 2025, Canada implemented retaliatory measures by imposing tariffs on $30 billion worth of U.S. imports affected by tariffs. Additionally, Canada is getting ready to impose more tariffs on $125 billion later this month, in February 2025. These actions have the potential to disrupt the 30-year-long integration of supply chains. Dairy farmers are currently dealing with sudden drops in prices and facing uncertainty in the market for the long term.
U.S. Dairy Farmers: Mounting Losses
- Export Collapse: The U.S. risks losing its position as Canada’s top butter supplier, with $119 million in 2024 exports, as tariffs make products 25% more expensive. Due to domestic oversupply, prices for a specific type of milk used in dairy products could plunge by $1.70 per hundred pounds.
- Inadequate Federal Aid: The $85 million United States Department of Agriculture (USDA) relief package covers only 7% of projected revenue losses for affected farms. Mark, a dairy operator from Wisconsin, believes the relief package will not compensate for the 40% loss in profit margins from shipments to Canada.
- USMCA Showdown Looms: Trump’s Commerce Secretary nominee Howard Lutnick escalated tensions yesterday by declaring: “Canada treats our dairy farmers horribly. We’ll correct this in 2026 USMCA talks”.
Canadian Producers: Domestic Flood Risks
- Cheese Market Crisis: 83,800 metric tons of Canadian dairy exports – including $99M in cheese – now face U.S. tariffs, threatening domestic oversupply. Farmgate prices could drop 0.0237% despite record production costs.
- Border Bottlenecks: Critical cross-border ingredients like ultrafiltered milk face delays. Ontario processor Agropur reports, “We’ve suspended three production lines already.”.
- Relief Package Gaps: Canada’s CA$250 million support package for 2025-2026 leaves Quebec farmer Lucie Bouchard skeptical: “This covers 19% of our projected losses. We need tripled funding”.
Shared Threats
| Impact Area | U.S. Consequences | Canadian Consequences |
|---|---|---|
| Consumer Prices | +$1,300 annual food cost increase | 3-5% food inflation |
| Supply Chains | 12-18 month cheese shortages | 8% milk surplus by April |
| Livestock | 10% hog price drop projected | 15% cattle price collapse likely |
What’s Next?
- Mexico’s “Plan B”: President Sheinbaum will unveil counteractions by February 7, potentially targeting U.S. dairy equipment imports.
- Diversification Push: Both countries explore European Union (EU) and Asian markets, but new trade deals take 18-24 months to finalize.
- USMCA Time Bomb: The 2026 agreement review could eliminate remaining exceptions for tariffs on dairy products.
Dairy Farmers of Canada President David Wiens emphasizes, “This isn’t just about tariffs—it’s about preserving family farms.”. “What we require are immediate diplomatic resolutions, not further escalations.
Learn more:
- North American Dairy Trade: US-Mexico Relations Strengthen Amid Canada’s Growing Trade Tensions
- Global Dairy Trade: Key Insights Every Dairy Farmer Should Know
- American Dairy Farmers Grapple with Trade War and Immigration Policies: The Fight to Stay Afloat
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