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Charlebois: If we don’t reform supply management, Washington will do it for us

Whether Canada likes it or not, tariffs are now the new American trajectory

The U.S. Supreme Court was unequivocal: The tariffs imposed under the Trump administration were unconstitutional in their legal rationale. That distinction matters. The court did not declare tariffs themselves illegitimate. It rejected the justification used to impose them.

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In response, President Donald Trump invoked Article 122 and imposed a blanket 15% tariff on all goods entering the United States. The signal could not be clearer: Tariffs are not going away. They are being re-engineered.

Since early 2025, Washington has collected roughly $130 billion in tariff revenues. The court offered no guidance on what should happen to those funds. Thousands of American companies will undoubtedly challenge their assessments, but the broader message from the court — particularly reflected in Justice Brett Kavanaugh’s dissent — is that tariffs are likely to remain a structural feature of U.S. trade policy, regardless of who occupies the White House.

This decision was not partisan theatre. A Republican-dominated court ruled against a Republican president. That adds credibility. The ruling was procedural, not philosophical. The White House now has 150 days to construct a more defensible economic and legal framework to justify tariffs — and it will. The American political mood has shifted. A growing share of the electorate that believes globalization has disadvantaged the U.S. trade policy is adjusting accordingly.

U.S. wants more access to dairy market

Whether Canada likes it or not, this is the new American trajectory. So where does that leave us?

Canada needs a trade arrangement with the U.S. But it is increasingly unrealistic to assume that future access will be tariff-free. One of Washington’s predictable demands will be expanded access to Canada’s dairy market.

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More access? Yes. Dismantling supply management to satisfy short-term political pressure? Absolutely not.

Trump understands that dairy is a political wedge issue in Canada. Yet from a business perspective, the case for dramatically expanding U.S. retail dairy exports into Canada is weak. Canadian consumers are not clamouring for American fluid milk.

However, the story changes at the ingredient level. Industrial dairy proteins produced in the U.S. are far more competitive than Canadian equivalents. On that front, expanded access could benefit processors on both sides of the border. That conversation should be grounded in economics, not ideology.

Better way to compensate dairy farmers

The traditional Canadian response to trade concessions has been compensation. Ottawa distributed more than $1.7 billion in payments to dairy farmers following previous agreements. While politically expedient, that approach entrenches inefficiency. It inflates quota values, pushes farmland prices higher and reinforces overcapitalization. In the long term, it weakens the sector.

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There is a better way. Instead of compensating everyone, Ottawa should consider strategic buyouts. If 3-4% of national production were allocated to American access — roughly 400 million litres of milk annually — the farm-gate value would be around $350 million. The associated quota asset value would approximate $1.5 billion.

Use federal funds to buy out producers who do not wish to compete in a gradually more open environment. Consolidate around farms that are prepared to modernize, innovate and scale. That is structural reform, not political Band-Aids.

Next, harmonize quota allocation nationally. Reduce the fragmentation created by provincial boards. Reward efficiency and productivity rather than historical entitlements. Within a decade, Canada could preserve supply management while making it far more adaptable and competitive relative to American producers.

Supply management serves legitimate policy objectives: Territorial occupation, income stability and a degree of food sovereignty. But it is currently too rigid and too costly. The system needs modernization, not blind defence.

Waste needs to be addressed

We also need to address waste. Dumping millions of litres of milk while claiming food security undermines credibility. Surplus production should be systematically transformed into milk powder or value-added exports. With supply management, Canada has tools the U.S. does not. We should use them intelligently.

This moment is not about appeasing Trump. It is about strengthening Canada.

Tariffs are likely here to stay in the U.S. Canada must adapt strategically. The goal should not be to protect inefficiency. It should be to preserve what works, reform what doesn’t and position our dairy sector to compete in a more open — and more volatile — North American market.

It is time to save supply management from itself.

And to do so on our terms.

– Charlebois is director of the Agri-Food Analytics Lab at Dalhousie University, co-host of The Food Professor Podcast and visiting scholar at McGill University.

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