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improve our trade position with the U.S.—and simultaneously benefit Canadian consumers—policymakers could dismantle our outdated system of supply management, which restricts supply, controls imports and allows producers of milk, eggs and poultry to maintain higher prices for their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

From the Fraser Institute

Ross McKitrick

Canada’s Path to Net Zero by 2050: Darkness at the End of the Tunnel

The federal government’s plan to achieve “net zero” greenhouse gas emissions will result in 254,000 fewer jobs and cost workers $8,000 in lower wages by 2050, all while failing to meet the government’s own emission-reduction target, finds a new study published today by the Fraser Institute, an independent, nonpartisan Canadian public policy think-tank.

“Ottawa’s emission-reduction plan will significantly hurt Canada’s economy and cost workers money and jobs, but it won’t achieve the target they’ve set because it is infeasible,” said Ross McKitrick, senior fellow at the Fraser Institute and author of Canada’s Path to Net Zero by 2050: Darkness at the End of the Tunnel.

The government’s Net Zero by 2050 emission-reduction plan includes: the federal carbon tax, clean fuel standards, and various other GHG-related regulations, such as energy efficiency requirements for buildings, fertilizer restrictions on farms, and electric vehicle mandates.

By 2050, these policies will have imposed significant costs on the Canadian economy and on workers.

For example:

• Canada’s economy will be 6.2 per cent smaller in 2050 than it would have been without these policies.
• Workers will make $8,000 less annually.
• And there will be 254,000 fewer jobs.

The study also shows that even a carbon tax of $1,200 per tonne (about $2.70 per litre of gas) would not get emissions to zero. Crucially, the study finds that the economically harmful policies can’t achieve net-zero emissions by 2050 and will only reduce GHG emissions by an estimated 70 per cent of the government’s target.

“Despite political rhetoric, Ottawa’s emission-reduction policies will impose enormous costs without even meeting the government’s target,” McKitrick said.

“Especially as the US moves aggressively to unleash its energy sector, Canadian policymakers need to rethink the damage these policies will inflict on Canadians and change course.”

• The Government of Canada has committed to going beyond the Paris target of reducing greenhouse gas (GHG) emissions to 40 percent below 2005 levels as of 2030 and now intends to achieve net zero carbon dioxide (CO2) emissions as of 2050. This study provides an outlook through 2050 of Canada’s path to net zero by answering two questions: will the Government of Canada’s current Emission Reduction Plan (ERP) get us to net zero by 2050, and if not, is it feasible for any policy to get us there?
• First, a simulation of the ERP extended to 2050 results in emissions falling by approximately 70 percent relative to where they would be otherwise, but still falling short of net zero. Moreover, the economic costs are significant: real GDP declines by seven percent, income per worker drops by six percent, 250,000 jobs are lost, and the annual cost per worker exceeds $8,000.
• Second, the study explores whether a sharply rising carbon tax alone could achieve net zero. At $400 per tonne, emissions decrease by 68 percent, but tripling the carbon tax to $1,200 per tonne achieves only an additional 6 percent reduction. At this level, the economic impacts are severe: GDP would shrink by 18 percent, and incomes per worker would fall by 17 percent, compared with the baseline scenario.
• The conclusion is clear: Without transformative abatement technologies, Canada is unlikely to reach net zero by 2050. Even the most efficient policies impose unsustainable costs, making them unlikely to gain public support.

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Ross McKitrick