Tip O’Neil, a legendary House Speaker and friend of Ronald Reagan said, “All politics is local.” Heading west from Milwaukee, you will see fields of corn and cows. The cows are cogs in a huge international market. Wisconsin is a major milk and cheese producer. Bessie the cow and her Wisconsin friends produce 25 percent of all US cheese. America produces 5.2 percent of the world’s cheese.
Milk is an international commodity. My immediate family splits north and south of the Canadian American border. My extended family has or had dairy farms on both sides of this line. The tug-of-war between our two governments is comic, complex, and detailed (though all passion is reserved for hockey). The trade flow is blocked by multiple interlocking trade agreements among all nations that consume and produce cheese.
In a true free market, there are no tariffs. A tariff is a “tax on consumers.” It certainly draws out in a two-dimensional diagram as a tax. But we do not conduct commerce in a two-dimensional world. Citizens don’t use a whiteboard to calculate their grocery budget, or measure inflation’s impact. Consumers do not know where to find ceteris paribus in the produce aisle.
International trade has too many variables to trace a front-end tariff charge to a resultant actual retail cost to consumers. Genetics, animal husbandry, nutrition, weather, politics, cost of energy, VATs (value-added taxes), currency exchange rates and consumer tastes, exports and national quotas are all variables affecting milk and cheese prices.
A true free international market should have no state interference in trade. Do the US, Canada, Mexico, and China truly have free markets? Interventions such as quotas, tariffs, and subsidies are present in all three.
Wisconsin’s 1.27 million cows are leaders in US 2024 production of 4.454 Billion pounds of milk. The cheese story is important locally and to Canada. Cheese is a staple to shoppers on both sides of the snow line. Americans eat, on average, 36 pounds of cheese annually. The entire existing trade system for milk is emblematic of governments’ convoluted intrusions into foreign trade and domestic protections. Canadian milk and milk products have TRQs (tariff rate quotas) in trade treaties. Quantities equal or less than the TRQ are considered MFN (most-favored nation) and are tariffed at 7.5 percent. Excesses of import quotas are tariffed at rates from 265 percent and up to 313 percent.
China’s US milk imports are decreasing from the 2020 trade agreement terms. European producers have lifted previous quotas on their own herds, shrinking the available export market. US herds are pumping out more per cow and Russia has sanctioned US products.
Quebec and Ontario farms account for two thirds of Canadian domestic milk production. In the seventies it was rumored that high milk tariffs were a bribe to Quebec’s inefficient farms to reject the Parti Quebecois referendum for secession. Whether this manipulation was true or not, it addressed problems facing most US farms. This is an international and long-term problem.
The US “Milk From Family Dairies Act,” designed to support small farms, borrows many Canadian ideas. Three major objectives of the United States’ “Family Farm Act” advocates are:
- Price floors, allowing family-scale dairy farmers to cover their costs of operation;
- Production management mechanisms balancing US dairy supply with demand;
- Managed imports and exports supporting farmer incomes and worker rights
The United States supports our Dairy Farmers with price stability by purchasing excess cheese and butter and controlling imports. This excess inventory exceeds 1.4 billion pounds of cheese stored in Missouri’s limestone caves. Even government purchases could not prevent farms dumping 43 million gallons of milk in 2023. The scene is reminiscent of Steinbeck’s Grapes of Wrath. “Slaughter the pigs and bury them” or “spray kerosene on a crop of excess oranges” to follow price controls.
We overproduce. This fact suggests prices should be lower, but the price floor and aging cheese requirements are from Carter’s administration and do save many family farms. Only one politician in the US has said we may need subsidized off-ramps for our farms, and that’s Robert F. Kennedy, Jr.
The United States imports less cheese than it exports. If imports cost more from tariffs, we have a healthy reserve of domestic cheese and our overproduction to buffer shortages. The tariffs do not directly affect the domestic import costs which are muted by packaging or market transport completed onshore. We will hardly feel the charges the Canadians may add.
The real threat to Canadian cheese—and all Canadian products that may receive a tariff—is the exchange rate. It currently costs seventy cents to buy a Canadian dollar. Fuel costs are 30 percent more, measured in US dollars. The weakened Canadian dollar is a Liberal Government tariff on the citizenry.
An 8-ounce block of Premium Wisconsin in 5-year-old Cheddar retails for about $8.00 in my stores. Across the border and MFN tariffs plus exchange rate drives this retail cost to $12.85 CDN. The VAT taxes add a federal 5 percent charge, plus provincial VATs up to 13 percent. This combination of taxes lowers cheese volume purchased, shifting grocery store sales to specialty shops.
Countervailing tariffs will not cost the US as claimed. American consumers can adapt to substitute goods. This beginning promises a reset of the existing byzantine and overlapping tariffs making trade easier, and less expensive. There is no room for efficiency from comparative advantage in the current maze of interlocking treaties. With ceteris paribus the math works only on a whiteboard, not your wallet.
