US to sue Canada over dairy practices as hopes for better trade relations fade

After a tumultuous four years living next door to Donald Trump, many Canadians had hoped that relations with their closest neighbour would mend under Joe Biden. The former president had slapped tariffs on Canadian steel and aluminum, threatened levies on the automotive sector, and called the prime minister, Justin Trudeau, “two-faced”.

But in recent weeks, Canadian officials have faced growing tensions with the US under Biden as leaders on both sides confront domestic political challenges.

On Tuesday, the US trade representative, Katherine Tai, announced plans to sue Canada over its controversial dairy practices, accusing the country of breaching the US-Mexico-Canada agreement, the continent’s updated free trade pact.

For years, Canada has strictly controlled the production of milk, butter and cheese through supply management – a complex system of production controls and tariffs meant to keep domestic prices stable. Imported products – such as American cheese – are slapped with a 300% levy.

Related: 'My butter seems harder': spread sparks furore over Canada's dairy industry

While Canada has announced plans to allow more imports without hefty tariffs, Tai alleged that Canada is still using its complex system of licences and tariffs to favour Canadian producers rather than products from producers in other countries.

Canada’s trade minister, Mary Ng, said in a statement that she was “disappointed” at the decision and that her government would “protect and defend” the practice of supply management. Many of the farmers who benefit from the program are in the province of Quebec, a key electoral battleground.

Trudeau downplayed the tension over dairy, saying there will “always be issues upon which Canada and the US have disagreements”.

Those disagreements include an announcement last week by the US commerce department to double the tariffs on softwood lumber, the latest move in a feud that has persisted for nearly four decades. Canada has also grown frustrated that Biden hasn’t publicly supported Canada in a dispute with Michigan over Line 5, an oil and natural gas pipeline that Ottawa says is critical to its economy and energy needs.

“Canada is at something of a disadvantage when it comes to trade relations with the US. It’s close and it feels more domestic. There’s not a sense that we’re dealing with China and we should be careful,” said Christopher Sands, director of the Wilson Center’s Canada Institute in Washington. “With Canada, there’s this perception that we can take them on, we’re not afraid of them.”

Both dairy and lumber are issues that Canadian officials might have hoped could be more favourably negotiated under Biden.

But a narrowly divided Congress and looming midterm elections means Biden and the Democratic party feel immense political pressure to be strong on trade, said Sands – meaning there is little appetite for trade concessions. “Nobody on Capitol Hill wants to go into the next election saying they let the Canadians off the hook,” he said.

The timing for Trudeau has also been poor.

Hoping to convert his parliamentary minority into a majority, the prime minister is now tasked with managing a number of issues in key electoral regions of the country.

“Ottawa was likely hoping they could buy more time on all of these disputes, maybe even after a fall election,” said Sands. “That doesn’t appear to be the case.”