FacebookTwitterGoogle+RedditEmail

Milking Trump’s Trade Dispute With Canada

Photo Source jimmy brown | CC BY 2.0

The other 49 states have a massive trade deficit with Michigan in cars because of the terrible trade deals that our stupid trade negotiators signed with Michigan. Thankfully, Trump is going to impose a 25 percent tariff on cars from Michigan going into the other 49 states to set things right.

That is pretty much how we should understand Trump’s complaint about the trade surplus that Canada has with the United States. (Yes, the United States actually runs a trade deficit with Canada, when properly measured, even including services.) Canada has a trade surplus for pretty much the same reason that Michigan has a trade surplus in cars. It has historically set itself up as a good place to manufacture goods.

Note that Canada’s trick is not low cost labor. Its workers get comparable wages to workers in the U.S. and they enjoy considerably more labor rights than do workers here. That is the same story with Michigan’s auto industry where workers are more likely to be unionized and get somewhat higher wages on average than workers in the other 49 states. (There can be currency issues with Canada, but we’ll skip that for now.)

Suppose we did put 25 percent tariffs on cars going from Michigan to the other 49 states. Would that mean more jobs in the auto industry in the other 49 states?

The answer to that is not clear. To some extent the auto manufacturers that have operations in Michigan may just keep their factories going and split the tariff with their customers. This will mean fewer Michigan cars will be sold in the other 49 states. Since Michigan cars include many parts from the other 49 states, that will mean fewer jobs in the auto industry in the other 49 states.

Some of the people who don’t buy Michigan cars will buy cars produced in the other 49 states, that will be a gain. But some will buy cars produced in Japan, Korea, and elsewhere, that will be a loss of jobs. Of course higher car prices will mean somewhat fewer car buyers overall.

Long and short, it is not easy to say for sure when we have a highly integrated car industry whether imposing a tariff on cars produced in Canada or Michigan will mean more auto jobs in the domestic or non-Michigan domestic industry. We do know for sure it means that people will pay more for cars.

But let’s get to the real fun, Donald Trump’s battle over Canada’s tariffs on milk. As many news stories have pointed out, the issue with Canada is actually an import quota, not the tariffs. The high tariffs are the mechanism for enforcing the quota. But let’s say we join Donald Trump’s crusade and demand Canada ends all protection for its dairy industry. What would be the benefit for our dairy farmers? Let’s bring in Mr. Arithmetic and check the numbers.

First, let’s get an idea of the value of Canada’s dairy market. Our farmers produced $35.5 billion worth of dairy products in 2012. If we up that by 15 percent for growth and inflation, we get $39.7 billion for 2018. But we have a trade surplus in dairy products of roughly $2.0 billion, which leaves us with domestic consumption of $37.7 billion.

As a first approximation, let’s say that the size of Canada’s dairy market is proportional to its GDP, which is 8.8 percent of the size of the U.S. GDP. That comes to $3.3 billion annually. Suppose that Justin Trudeau realizes that he just can’t compete with Donald Trump’s prowess as a negotiator and agrees to eliminate all barriers to U.S. dairy products.

In that world, suppose this concession gives U.S. dairy producers half of Canada’s dairy market. This would mean annual sales in Canada of $1.65 billion. But we can’t write this all down as a gain for the U.S. industry. The U.S. already has a trade surplus of $650 million on dairy products. This means the net gain from Donald Trump’s big victory is an additional $1 billion annually in dairy sales to Canada, an amount equal to a bit more than 2.5 percent of current production.

But wait, dairy farmers can’t celebrate this big bonanza just yet. It is not only Canada that has supply management in dairy, the U.S. does as well. In 2012 the direct cost to the government of its dairy programs was $222 million, which increased by 15 percent for growth, gives $257 million. With 46,000 farmers that comes to $4,600 per farmer, roughly twice the maximum annual individual food stamp benefit.

But the direct cost is only a fraction of the total cost. The purpose of supply management is to prop up the price. Most of the subsidy is in the form of the higher prices paid by consumers. It would take a while to go through all the arithmetic on this, but one analysis put the total cost to U.S. consumers at $20 billion a year or $430,000 per farmer (more than 200 times the maximum individual food stamp benefit).

The long and short is that even in ths big Trump win scenario, U.S. dairy farmers are unlikely to see much benefit. Instead of the U.S. government propping up milk prices, increased sales to Canada will prop up milk prices. There will be a saving to the U.S. government in this story of the $260 million a year or so it spends in direct subsidies. This is equal to roughly 0.005 percent of federal spending. That is probably enough to cover the cost of Donald Trump’s golfing vacations, but not much more.

This column originally appeared on Dean Baker’s Beat the Press blog.

More articles by:

Dean Baker is the senior economist at the Center for Economic and Policy Research in Washington, DC. 

Weekend Edition
November 16, 2018
Friday - Sunday
Jonah Raskin
A California Jew in a Time of Anti-Semitism
Andrew Levine
Whither the Melting Pot?
Joshua Frank
Climate Change and Wildfires: The New Western Travesty
Nick Pemberton
The Revolution’s Here, Please Excuse Me While I Laugh
T.J. Coles
Israel Cannot Use Violent Self-Defense While Occupying Gaza
Rob Urie
Nuclear Weapons are a Nightmare Made in America
Paul Street
Barack von Obamenburg, Herr Donald, and Big Capitalist Hypocrisy: On How Fascism Happens
Jeffrey St. Clair
Roaming Charges: Fire is Sweeping Our Very Streets Today
Aidan O'Brien
Ireland’s New President, Other European Fools and the Abyss 
Pete Dolack
“Winners” in Amazon Sweepstakes Sure to be the Losers
Richard Eskow
Amazon, Go Home! Billions for Working People, But Not One Cent For Tribute
Ramzy Baroud
In Breach of Human Rights, Netanyahu Supports the Death Penalty against Palestinians
Brian Terrell
Ending the War in Yemen- Congressional Resolution is Not Enough!
John Laforge
Woolsey Fire Burns Toxic Santa Susana Reactor Site
Ralph Nader
The War Over Words: Republicans Easily Defeat the Democrats
M. G. Piety
Reading Plato in the Time of the Oligarchs
Rafael Correa
Ecuador’s Soft Coup and Political Persecution
Brian Cloughley
Aid Projects Can Work, But Not “Head-Smacking Stupid Ones”
David Swanson
A Tale of Two Marines
Robert Fantina
Democrats and the Mid-Term Elections
Joseph Flatley
The Fascist Creep: How Conspiracy Theories and an Unhinged President Created an Anti-Semitic Terrorist
Joseph Natoli
Twitter: Fast Track to the Id
William Hawes
Baselines for Activism: Brecht’s Stance, the New Science, and Planting Seeds
Bob Wing
Toward Racial Justice and a Third Reconstruction
Ron Jacobs
Hunter S. Thompson: Chronicling the Republic’s Fall
Oscar Gonzalez
Stan Lee and a Barrio Kid
Jack Rasmus
Election 2018 and the Unraveling of America
Sam Pizzigati
The Democrats Won Big, But Will They Go Bold?
Yves Engler
Canada and Saudi Arabia: Friends or Enemies?
Cesar Chelala
Can El Paso be a Model for Healing?
Mike Ferner
The Tragically Misnamed Paris Peace Conference
Barry Lando
Trump’s Enablers: Appalling Parallels
Ariel Dorfman
The Boy Who Taught Me About War and Peace
Binoy Kampmark
The Disgruntled Former Prime Minister
Faisal Khan
Is Dubai Really a Destination of Choice?
Arnold August
The Importance of Néstor García Iturbe, Cuban Intellectual
James Munson
An Indecisive War To End All Wars, I Mean the Midterm Elections
Nyla Ali Khan
Women as Repositories of Communal Values and Cultural Traditions
Dan Bacher
Judge Orders Moratorium on Offshore Fracking in Federal Waters off California
Christopher Brauchli
When Depravity Wins
Robby Sherwin
Here’s an Idea
Susan Block
Cucks, Cuckolding and Campaign Management
Louis Proyect
The Mafia and the Class Struggle (Part Two)
David Yearsley
Smoke on the Water: Jazz in San Francisco
Elliot Sperber
All of Those Bezos
FacebookTwitterGoogle+RedditEmail