President Trump announced the possibility of raising tariffs on Canadian imports-including key agricultural products-to 35%, citing both trade imbalance concerns and Canada's failure to control fentanyl flow across the border. While a blanket 35% levy would affect non-USMCA goods, dairy has become the focal point, after Trump criticized Canada's out-of-quota tariffs on U.S. dairy products, which can reach up to 400%.

Why dairy matters: Under USMCA, the U.S. was guaranteed 3.6% tariff-free access to Canada's $15billion dairy market. However, access beyond those quotas is deeply limited by Canada's supply-management system, according to Trump's team, making this issue central for U.S. dairy producers and trade negotiators alike.

Industry groups warn a sharp tariff hike would have ripple effects on export markets, crop insurance coverage, and co-op supply chains serving livestock and dairy sectors. Elevated duties risk raising input costs and decreasing commodity prices, while forcing grain and feed exporters to scramble as trade flows shift.

Policy and market impact:
• USMCA dynamics shift - Canada may push back harder to preserve supply-management protections.
• U.S. farm groups split - some support tariffs to level the playing field; others fear retaliation and higher costs.
• Global trade tensions - the U.S. is also considering 15-20% tariffs on other partners, signaling a broader protectionist pivot.

Canadian officials, including Prime Minister Mark Carney, are pleading for a trade-peace deal by July21 to stave off these hikes. However, Trump's hammering on dairy access suggests a prolonged confrontation, with dairy at the heart of U.S. strategy.

Implications for U.S. Agriculture

• Dairy/exporters will monitor quota and pricing shifts closely, especially if Canada's supply-management system remains intact.

• Livestock sectors may face rising feed costs if market access twists.

• Crop farmers (corn, soy) could see market realignments as Canada seeks alternative suppliers.

• Policymakers may revisit crop insurance, co-ops, and USDA support programs to buffer volatility.