Trump is Right, Trudeau is a Big Fat Phony on Trade
Canadian Prime Minister Justin Trudeau is known for dressing up in ridiculous costumes. His latest? A defender of free trade.
Over the weekend, Trudeau took to Sunday morning news shows to criticize the Trump Administration’s tariffs on Canadian steel and aluminum. He called the decision “insulting,” noting that “there are no two countries that are as interconnected, interdependent…You sell more things to us every year than to UK, Japan, and China combined.”
Of course Trudeau’s criticism of the new tariffs is valid, protectionism is bad for everyone but special interest groups they protect. The problem is that Trudeau’s own policies are hard to reconcile with his new found appreciation for free trade.
Canada’s Supply Management System is a perfect example of agricultural protectionism – and a policy that has received the full endorsement of Justin Trudeau. The program involves an impressive collection of bad government policies, including direct subsidies, price fixing, supply regulation, and high tariffs on international imports. In a 2014 article on Canada’s agricultural policy, Predrag Rajsic illustrated the incredible amount of regulation that exists in milk production:
For example, for the past 40 years, the production of milk in Canada has been legally regulated at the federal and provincial levels. At the federal level, production is limited to about 79 million hectoliters per year. Each province has a strictly defined share in the total national production that cannot be exceeded.
For the whole system to function, milk can be produced only by a farmer that is registered with a provincial marketing board. Every farmer is allowed to supply a precisely defined quantity of milk, which is referred to as a quota. A farmer may increase his quota only if another farmer is willing to sell his quota. The exchange of quotas is also regulated in detail and must be approved by provincial marketing boards. Currently, farmers are willing to pay more than $30,000 in exchange for transfer of rights to increase their dairy herd by one dairy cow. However, the soaring quota prices have created barriers for new entrants into the industry. A person that wants to start a small dairy farm first needs to pay more than $1 million just to be allowed to produce milk. These barriers to entry have triggered quota price controls in Ontario and Quebec, the major dairy producing provinces. The price controls, in effect, have reduced the willingness of farmers to sell their quotas. Now the Ontario milk marketing board is offering quotas at subsidized prices to a limited number of new entrants (i.e., not more than ten per year).
Canada’s Supply Management System has faced its biggest internal challenge recently from Maxime Bernier, a member of parliament who sought the leadership nomination of his Conservative Party. Last year he wrote an article praising Trump’s criticism of the protectionism scheme, noting the cost it has for Canadian citizens:
Canadian families, especially low-income ones with children, suffer because of the hundreds of dollars in extra cost they need to pay each year to support this system. Isn't it unfair?
I'm also sorry for the Canadian producers protected from competition by this cartel. It's actually very unfair for some of them, too.
They have to pay $24,000 to $40,000 a cow to their protection racket for a piece of paper giving them the right to produce a certain quantity of milk – and that's before paying for the cow itself! Even when they run a very efficient farm, they cannot grow and sell to foreign markets. That's the price to pay for not allowing foreigners to sell here.
It is encouraging to hear such passionate defenses of free trade being made by both international leaders and news pundits as a result of Donald Trump’s tariffs. Unfortunately, the actions of those leaders – both in the past and present - undermine their rhetoric. If Justin Trudeau really believes that tariffs between the US and Canada are an insult to both countries, then he should lead by example.
Until then, Trump is right to call out his hypocrisy.