From the Fraser Institute

By Alex Whalen and Jake Fuss

On the eve of a possible trade war with the United States, Canadian policymakers have a valuable bargaining chip they can play in any negotiations—namely, Canada’s “supply management” system.

During his first day in the Oval Office, President Donald Trump said he may impose “25 per cent” tariffs on Canadian and Mexican exports into the United States on Feb. 1. In light of his resounding election win and Republican control of both houses of congress, Trump has a strong hand.

In response, Canadian policymakers—including Prime Minister Justin Trudeau and Ontario Premier Doug Ford—have threatened retaliation. But any retaliation (tariffs imposed on the U.S., for example) would likely increase the cost of living for Canadians.

Thankfully, there’s another way. To improve our trade position with the U.S.—and simultaneously benefit Canadian consumers—policymakers could dismantle our outdated system of supply management, which restricts supply, controls imports and allows producers of milk, eggs and poultry to maintain higher prices for their products than would otherwise exist in a competitive market. Government dictates who can produce, what can be produced, when and how much. While some aspects of the system are provincial (such as certain marketing boards), the federal government controls many key components of supply management including import restrictions and national quotas.

How would this help Canada minimize the Trump threat?

In the U.S., farmers backed Trump by a three-to-one margin in the 2024 election, and given Trump’s overall views on trade, the new administration will likely target Canadian supply management in the near future. (Ironically, Trump has cried foul about Canadian tariffs, which underpin our supply management system.) Given the transactional nature of Trump’s leadership, Canadian negotiators could put supply management on the negotiating table as a bargaining chip to counter demands that would actually damage the Canadian economy, such as Trump’s tariffs. This would allow Trump to deliver increased access to the Canadian market for the farmers that overwhelmingly supported him in the election.

And crucially, this would also be good for Canadian consumers. According to a 2015 study, our supply management system costs the average Canadian household an estimated extra $300 to $444 annually, and higher prices hurt lower-income Canadians more than any other group. If we scrapped supply management, we’d see falling prices at the grocery store and increased choice due to dairy imports from the U.S.

Unfortunately, Parliament has been moving in the opposite direction. Bill C-282, which recently passed in the House of Commons and is now before the Senate, would entrench supply management by restricting the ability of Canadian trade negotiators to use increased market access as a tool in international trade negotiations. In other words, the bill—if passed—will rob Canadian negotiators of a key bargaining chip in negotiations with Trump. With a potential federal election looming, any party looking to strengthen Canada’s trade position and benefit consumers here at home should reject Bill C-282.

Trade negotiations in the second Trump era will be difficult so our policymakers in Ottawa and the provinces must avoid self-inflicted wounds. By dismantling Canada’s system of supply management, they could win concessions from Team Trump, possibly avert a destructive tit-for-tat tariff exchange, and reduce the cost of living for Canadians.

Alex Whalen

Director, Atlantic Canada Prosperity, Fraser Institute

Jake Fuss

Director, Fiscal Studies, Fraser Institute