Trump’s new tariffs threaten $8.2B dairy exports. Can farmers survive retaliatory trade wars, H5N1 outbreaks, and collapsing milk prices?

EXECUTIVE SUMMARY: The U.S. dairy industry faces unprecedented risks as President Trump’s “reciprocal tariffs” trigger retaliatory levies from Canada, China, and Mexico, threatening $8.2 billion in annual exports. With milk futures already down 12% and processing plants bracing for oversupply, farmers confront collapsing prices amid H5N1 outbreaks, labor shortages, and rising feed costs. While experts warn of $56,000/year income losses for midsize farms, proactive strategies like securing contracts, diversifying exports, and leveraging USDA risk programs offer lifelines. The article analyzes how tariff tensions intersect with biosecurity threats, production shifts, and policy uncertainty—and what producers can do to protect their operations.

KEY TAKEAWAYS:

• $8.2B Export Crisis: Retaliatory tariffs from Canada (25% on cheese/butter) and China (10% on milk) jeopardize 18% of U.S. milk production sold abroad.
• Double Whammy for Farmers: Milk futures fell 12% since February and H5N1 outbreaks strain operations, with federal testing now mandatory for interstate cattle.
• Survival Strategies: Lock in contracts pre-tariffs, use Dairy Margin Coverage programs, and target emerging markets like Southeast Asia.
• Hidden Canada Conflict: Tariff-rate quotas (TRQs) block U.S. access to promised Canadian markets more than headline tariffs.
• Domestic Silver Lining: Reduced import competition could boost U.S. butter/cheese sales—if export losses don’t flood the home market.

As President Donald Trump announces his “Liberation Day” tariff measures in the Rose Garden today, America’s dairy farmers and processors face a watershed moment. With a record $8.2 billion export market at stake and retaliatory tariffs already targeting U.S. dairy products, could the industry’s ambitious global expansion plans be derailed just as billions in new processing capacity come online? The timing of this trade confrontation could hardly be worse for an industry already grappling with tight margins, H5N1 outbreaks in cattle herds, and uncertain labor policies.

Understanding the Tariff Dispute

President Trump’s expected “reciprocal tariffs” announcement is designed to match levies that other countries impose on U.S. products. The administration has focused mainly on Canada’s dairy policies, which Trump has characterized as unfair to American farmers.

Trump’s Commerce Secretary nominee, Howard Lutnick, emphasized this position during his confirmation hearings: “Canada treats our dairy farmers horribly. That’s got to end. I’m going to work hard to make sure, as an example for your dairy farmers, they do much better in Canada than they’ve ever done before”.

“Canada treats our dairy farmers horribly. That’s got to end. I’m going to work hard to make sure they do much better in Canada than ever.” – Howard Lutnick, Commerce Secretary nominee.

However, these claims require context. While Canada does maintain high tariffs on dairy products, these rates only apply to imports exceeding predetermined tariff rate quotas (TRQs). Below these quotas, American dairy sales to Canada face zero tariffs under the United States–Mexico–Canada Agreement (USMCA).

The Trump administration has already implemented a 20% additional tariff on Chinese imports, prompting Beijing to place 10% duties on some U.S. milk products. The president has also confirmed that 25% tariffs on Mexican and Canadian imports have now taken effect, despite a prior 30-day reprieve granted to both countries.

“Tariffs make you a little bit nervous when you’re an American farmer,” says Hans Brighton, who owns a dairy farm with about 460 cows in Merill, Wisconsin. This sentiment reflects widespread concern throughout America’s dairy regions.

The impact of these tariff actions is already evident in dairy markets. Since Trump first credibly threatened tariffs in early February, May Class III and Class IV milk futures have lost 12% and 9% of their value, respectively. Milk futures traded in Chicago dropped to their lowest level since April 2024, while whey prices reached a five-month low.

$8.2 Billion and Growing: What’s at Stake

The U.S. dairy industry has transformed dramatically over the past two decades, evolving from a net importer to exporting .2 billion worth of dairy products to 145 countries worldwide. Today, approximately one day’s milk produced on America’s dairy farms each week is exported, representing roughly 18% of all production.

“The U.S. dairy industry is ready to capitalize on a renewed trade agenda in 2025,” said Michael Dykes, president and CEO of the International Dairy Foods Association (IDFA). “Consumers in the United States and worldwide continue to demand more U.S. dairy because we provide an assortment of delicious, nutritious, and affordable dairy products.”

Mexico and Canada—America’s top two global trading partners—account for over 40% of U.S. dairy exports. In 2024, they imported record values of $2.47 billion and $1.14 billion, respectively. China has also been a key market, importing between $500 million and $800 million of U.S. dairy products annually.

The industry has invested more than $8 billion in new processing capacity scheduled to come online in the next few years, a commitment made with the expectation of continued export growth. New cheese production facilities are being established across South Dakota and Texas to capitalize on increasing global demand.

From the Farm: Voices from the Front Lines

The tariff tensions are creating immediate challenges for dairy farmers of all sizes across the country. AJ Wormuth, who manages 3,600 dairy cows at Half Full Diary in upstate New York, reports that he is already experiencing rising expenses due to Trump’s tariffs, while the looming threat of an escalating trade conflict is causing a decline in the price he receives for his milk.

“We’re facing a double challenge — lower prices coupled with increasing costs,” Wormuth explains. He accelerated a barn renovation after being informed that the cost of new metal stalls would increase by $21,000 due to Trump’s 25% tariffs on steel and aluminum. “We can’t simply raise our prices at the market because all our expenses are increasing, leaving us in a difficult position.”

For smaller operations, the concerns are equally pressing. Annie Watson, who operates an organic dairy farm in Maine with 70 cows, highlights the longer-term planning challenges: “As dairy farmers, we work within three-year cycles — from the birth of a calf until it becomes a milking cow. Things don’t happen quickly on our farms, so when policies are implemented swiftly, it poses challenges for those engaged in this cycle”.

Near the Canadian border, Watson sources most of her feed from Canada. She calculates that the tariffs could increase her grain expenses by $1,200 monthly. “It would be more manageable if many of our organic dairy farmers weren’t already financially struggling due to market conditions,” notes Watson, who also leads the Maine Dairy Association. “Many farmers might endure this without accruing further debt, but numerous individuals are already behind on their bills.”

Leonard Poen of the University of Wisconsin-Madison extension says retaliatory tariffs could decrease the income of a medium-sized farm in Wisconsin with about 250 cattle by up to $56,000 per year. “I don’t think any part of the supply chain is going to be insulated from this,” he warns.

Retaliation Risks: Trading Partners Respond

The reaction from America’s trading partners has been swift and targeted. Canada’s package of retaliatory tariffs already includes 25% levies on American cheese, butter, and dairy spreads, while China has placed 10% duties on some milk products.

“It’s kind of a double-edged sword here — not only the uncertainty of reciprocal tariffs but also the uncertainty of those potential port fees on certain ships that would be docking at US ports,” said Lucas Fuess, a senior dairy analyst at Rabobank. “Ultimately, it’s just another one of those proposals adding uncertainty into global trade and US exports.”

The European Union has also declared its intention to impose retaliatory tariffs on American goods, with agricultural products from politically sensitive regions likely to be targeted to maximize political pressure on the administration.

Mexico, which accounts for nearly 25% of U.S. dairy exports, presents the most significant risk. Approximately 40% of cheese exported from the United States moves to Mexico. “It’s our number one market,” notes the Wisconsin Cheesemakers Association executive director, who hopes this will be a temporary situation.

What Producers Can Do: Strategic Responses to Tariff Challenges

Dairy producers aren’t powerless in the face of these trade tensions. Industry experts and economists recommend several strategies farmers can implement to protect their operations and potentially capitalize on changing market dynamics.

Secure Contracts Before Tariff Implementation “Certainly, folks have been gearing up. That’s been good for our trade data so far. We’re moving a lot more product because folks don’t want to be out of U.S. products during these times,” explains Sarah Dorland, a dairy economist with Ceres Dairy Risk Management. Proactively establishing long-term agreements with critical buyers before tariff changes take effect can provide a buffer against price volatility.

Utilize Risk Management Programs “Anything producers can do to manage their risk is a good thing,” advises Leonard Poen from the University of Wisconsin-Madison extension. “One thing right now is that Dairy Margin Coverage, which is offered through USDA Farm Service Agency, is still open.” This program provides a crucial safety net that can help offset losses from market volatility caused by trade disruptions.

Diversify Export Markets With traditional export destinations implementing retaliatory tariffs, exploring alternative markets becomes essential. Countries in Southeast Asia (where food consumption is expected to grow to over 31% of global consumption within the next decade), the Middle East, and Africa offer potential new opportunities. The United Arab Emirates, which imports about 90% of its food, represents another promising market for dairy products.

Focus on Value-Added Products Developing specialized dairy products can open new revenue streams and differentiate your brand in domestic and export markets. This strategy is particularly effective during trade disruptions as value-added products typically command higher margins and may be less sensitive to tariff-induced price pressures.

Streamline Operations and Enhance Efficiency Evaluating production methods and investing in technology that enhances efficiency can help maintain competitiveness despite trade challenges. Implementing precision agriculture techniques and farm management software aids in better decision-making and can lower production costs.

Consider Domestic Opportunities While export disruptions create challenges, they may also reduce competition for domestic sales. For example, tariffs could raise the prices of imported dairy products at U.S. grocery stores, pushing U.S. consumers toward American-made alternatives.

Beyond the Headlines: Understanding the Canada Dairy Dispute

The administration’s focus on Canada’s dairy policies requires a complete understanding of context. Canada operates a supply management system that includes tariff rate quotas (TRQs), which allow a certain amount of dairy products to enter at low or zero tariffs, with dramatically higher rates applied to imports exceeding those quotas.

Under the USMCA, American dairy producers secured increased market access through expanded TRQs. However, U.S. industry representatives argue that Canada has failed to fully implement these provisions, using administrative barriers to prevent American producers from utilizing the agreed-upon market access.

Chuck Nicholson, associate professor at the University of Wisconsin-Madison, explains that “both the US and Canada use a system of tariffs for dairy products that includes two elements, ‘Tariff Rate Quotas’ (TRQs) and ‘Over-Quota Tariffs.’ TRQs indicate an amount of product that can enter the country at low tariff rates (or, in the case of US dairy products to Canada, generally zero tariffs)”.

The dairy industry’s complaint is not necessarily about the high tariff rates that make headlines (which can reach 298.5% for butter) but rather about the restrictions preventing U.S. exporters from fully utilizing their promised duty-free quotas.

Compounding Challenges: H5N1, Production Shifts, and Labor Concerns

The tariff tensions emerge against multiple challenges facing the U.S. dairy industry in 2025.

H5N1 Avian Influenza in Dairy Herds

The spread of H5N1 avian influenza in U.S. dairy cattle presents a significant concern. Since April 2024, dairy farms have dealt with this emerging threat, primarily affecting lactating cows. Common clinical signs include reduced appetite, decreased milk production, and abnormal milk appearance (thickened or discolored). While the virus causes high bird mortality, dairy cattle generally show less severe symptoms, with most animals recovering with supportive treatment.

Federal orders implemented in April and December 2024 require testing of lactating dairy cattle before interstate movement and sampling of raw milk from processing facilities nationwide. This National Milk Testing Strategy (NMTS) has successfully identified H5N1 in some cases before affected cattle developed clinical signs.

Biosecurity remains the best defense against H5N1, with the USDA urging veterinarians and producers to monitor for, separate, and test sick animals, minimize cattle movements, and isolate and monitor any newly received dairy cattle.

Shifting Production and Complex Supply Dynamics

The USDA has adjusted its 2025 milk production forecast downward to 226.9 billion pounds, about 1.1 billion pounds less than previous estimates. This reduction reflects lower-than-expected milk per cow output, revised by 85 pounds to 24,200 pounds per cow.

Despite these downward revisions, the all-milk price forecast has been increased to $22.75 per hundredweight (cwt), reflecting the impact of tighter supplies. This complex market environment creates challenges and opportunities for nationwide dairy operations.

USDA Milk Production Forecasts (2025)	Latest Forecast	Previous Forecast	Change
Total Milk Production (billion lbs)	226.9	228.0	-1.1
Milk Per Cow (lbs)	24,200	24,285	-85
Dairy Cow Inventory (million head)	9.390	9.390	0
All-Milk Price Forecast ($/cwt)	$22.75	$22.55	+$0.20

Immigration Reform and Labor Uncertainty

Immigration policy remains a pressing concern for dairy farmers who rely heavily on immigrant labor. Approximately half of dairy farm workers are immigrants, making the industry particularly vulnerable to changes in immigration enforcement and policy. This dependency creates additional uncertainty as farms navigate multiple challenges simultaneously.

Market Outlook and Industry Response

The dairy industry’s response to these challenges has mainly been unified, with major organizations calling for resolving tariff disputes while advocating for addressing legitimate trade concerns.

“Any disruption in trade flow is troubling,” stated Jaime Castaneda, vice president of policy at the National Milk Producers Federation. The agricultural community has expressed concerns about broad tariffs rather than more focused measures that could target specific trade barriers.

The executive director of the Wisconsin Cheesemakers Association hopes for a quick resolution: “We would hope that this is a temporary situation, that goals are met through these tactics, and that we don’t see any sort of disruption for a long time.”

While retaliatory tariffs are “top of mind,” Shawna Morris of the National Milk Producers Federation noted that the dairy industry is also “interested to see how the president might be able to use the leverage here, the threat of further actions, to drive real changes.” This suggests that some in the industry see potential long-term benefits if negotiations succeed in removing persistent trade barriers.

The Bottom Line: Navigating Uncertain Waters

The U.S. dairy industry stands at a critical juncture as President Trump announces his “Liberation Day” tariffs. With $8.2 billion in exports at stake and billions invested in expanding production capacity, the industry faces significant threats and potential opportunities in the evolving trade landscape.

The immediate outlook appears challenging, with markets reflecting uncertainty through lower prices and cautious buying behavior. Retaliatory tariffs from key markets like Canada, China, and potentially Mexico could severely disrupt export flows that now account for approximately 18% of U.S. milk production.

For dairy farmers and processors, the most effective response strategies include:

1. Embrace risk management tools like Dairy Margin Coverage to protect against market volatility
2. Lock in contracts with strategic buyers before tariff implementation to secure stable pricing
3. Explore new market opportunities in regions less affected by current trade tensions
4. Invest in efficiency-enhancing technologies to reduce production costs
5. Collaborate with industry organizations to advocate for policies that protect dairy interests

These approaches can help buffer the immediate impacts while positioning operations for long-term success. As Hans Brighton from Wisconsin puts it: “The president didn’t factor farmers into account when making this decision… When it comes to milk production or making cheese and the economy of the state of Wisconsin, it’s simply lost on him”. This perspective underscores why proactive strategies at the farm level are so crucial.

Agriculture Secretary Brooke Rollins mentioned last week that her department is exploring methods to “potentially alleviate any economic disasters that might befall some of our farmers” due to tariffs. During Trump’s first term, the federal government provided direct payments to farmers affected by retaliatory tariffs from China, but it remains unclear whether similar support will be available this time.

Despite current challenges, the dairy industry has demonstrated remarkable resilience throughout its history. The coming months will again test that resilience as producers navigate this complex trade environment. Those who implement strategic responses and remain adaptable to changing conditions will be best positioned to weather this storm and potentially emerge stronger when trade relationships stabilize.

Learn more:

• “Tariffs Cast Shadow Over U.S. Dairy Industry Outlook”
  Explore how Trump’s 25% tariffs on Canadian and Mexican imports are reshaping the U.S. dairy industry, with insights into market disruptions and supply dynamics.
• “Trump’s Trade War: Is Pennsylvania’s Dairy Goldmine Becoming a Political Sacrifice Zone?”
  Pennsylvania’s dairy farms face a crisis as retaliatory tariffs threaten $364 million in exports, with broader implications for rural economies and trade policy.
• “Dollar Dive: How Currency Chaos Could Save U.S. Dairy Exports—But Don’t Celebrate Yet”
  A weakening dollar boosts U.S. dairy competitiveness globally, but retaliatory tariffs and volatile markets complicate the outlook for farmers and exporters.

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