It is often said that courage is contagious. So too, alas, is governmental economic stupidity, from which the United States and Canada now suffer in abundance, especially in the form of tariffs, which good economists have denounced as idiotic for approximately 250 years.
As Adam Smith wrote in his 1776 volume, The Wealth of Nations, “In every country, it always is and must be the interest of the great body of the people to buy whatever they want of those who sell it cheapest. The proposition is so very manifest that it seems ridiculous to take any pains to prove it.”
One recent development in the tariff pandemic — it spreads so quickly that it is difficult to keep up with all the latest news — is Donald Trump’s threat of “reciprocal” 250 per cent tariffs on Canadian dairy. The tariffs would be reciprocal because under Canada’s agricultural supply management system, first installed in 1971, Canada currently charges tariffs of between 200 and 300 per cent on dairy imports (the rate varies), to go with approximately 150 to 165 per cent tariffs on chicken, turkey, and egg product imports. Under the United States-Mexico-Canada Agreement, which Trump has already abrogated, those tariffs are only applied to American imports after preset quotas are reached.
Canada’s supply management system is dumb. A dairy tariff by the U.S., if it comes to pass, only compounds the stupidity. The recent tariff madness on other goods — the constant threats of new tariffs, higher tariffs, counter-tariffs and tariffs that are announced one morning and withdrawn the same afternoon — is similarly idiotic.
According to a study in the journal Canadian Public Policy in 2015, supply management imposes “a burden of approximately 2.3 per cent ($339) of income per year on the poorest households, compared to 0.5 percent ($554) for the richest households. The burden is larger for households with children.” It also damages Canada’s economic productivity because protection from competition prevents efficiency and quality improvements and redirects capital and labour to relatively unproductive uses.
Despite supply management’s significant harm, the tariff war has introduced two possible arguments for keeping Canadian tariffs on dairy, poultry, and eggs. One is that we should keep the tariffs to spite Donald Trump. While this sounds tempting and might feel good, greater harm would be done to ourselves by keeping the tariffs, so this argument fails.
The second is the tariffs could be kept as a bargaining chip in the current tariff war and Canada could offer to abolish supply management in exchange for the U.S. removing other tariffs it has imposed. The problem is that by essentially overturning trade agreement that he himself signed in his first term, Trump has proven his signature on an agreement is worth less than the piece of paper it is printed on. So holding on to tariffs as a bargaining chip to extract something from Trump does not make sense either.
The fact is, the harm caused by supply management has not been reduced and has possibly been increased by the current tariff war, while the original benefits of scrapping it have not changed. The considerable harm supply management causes is evident not only from the 2015 Canadian Public Policy study, but also from recently published Statistics Canada’s published data on Canadian farms’ balance sheets.
“The value of poultry and market livestock inventories was up $2.2 billion (+20.3%) to $13.1 billion as of December 31, 2023,” Statcan reported. “The increase was attributable to higher prices of poultry and market livestock commodities, as inventory levels for most livestock were down.” In other words, farmers’ balance sheets grew by $2.2 billion in a year not because they were holding more inventory, but because poultry and market livestock had become so much more expensive.
It gets worse: while the value of poultry and market livestock was $13.1 billion, the quota value on farm balance sheets was $43.5 billion. Put another way: the artificial monopoly value of domestic farmers’ ability to sell agricultural products such as dairy, poultry, and eggs above market price is worth $43.5 billion — well over triple the value of their poultry and market livestock itself. Notably, $43.5 billion represents just the excess price consumers will pay, and excludes both the consumer surplus destroyed by lower food production caused by the quotas and the reduced economic productivity.
So where does Canada’s new prime minister stand on supply management? The same as Trudeau, of course — Mark Carney supports it. The day he was elected Liberal leader, the dairy cartel thanked him for “voicing his support for Canada’s dairy farmers and for supply management.” Turning Adam Smith’s clear insight on its head, Carney believes Canadians should pay more to get less.
National Post
Matthew Lau is a Toronto writer.