How do Canadian dairy tariffs affect US dairy exports in 2025?
Executive summary
Canadian dairy policy protects domestic farmers with tariff-rate quotas (TRQs) that let limited volumes in duty-free while imposing very high over-quota Most-Favoured-Nation (MFN) duties — commonly cited in the 240–300% range for specific products — though U.S. exporters rarely hit those over‑quota levels (average TRQ fill rates ~21–27% in early 2025) [1] [2]. U.S. exports to Canada have nonetheless grown substantially after USMCA, with U.S. dairy sales into Canada rising to roughly C$877 million in 2024 and Canada remaining an important market for U.S. dairy [3] [4].
1. Supply management and the tariff shield: how Canada’s system works
Canada’s supply management links domestic production controls to import limits enforced via TRQs: imports within quota enter at low or zero duties while over‑quota shipments face MFN rates that can exceed 200% [1]. The high statutory rates (examples: 241% on some liquid milk lines, 270–298% on powders/butter in reporting) are designed to keep over‑quota imports economically noncompetitive and preserve prices for Canadian producers [5] [3].
2. The numbers that matter: quotas, fill rates and real exposure
High headline tariff rates are often invoked in political rhetoric, but utilization matters: industry calculations show the average fill rate for calendar‑year dairy TRQs was roughly 26.72% at end‑2024 and about 21.24% for quota‑year measures in March 2025 — meaning U.S. exports typically stay within the lower‑duty volumes [2]. Multiple reports and studies show U.S. exporters are not routinely pushed into over‑quota tariffs because available quotas are underutilized [6] [7].
3. Trade flows: U.S. exports grew despite protections
USMCA opened specific TRQ access and U.S. dairy exports into Canada climbed after the deal: exports to Canada were a meaningful share of U.S. dairy shipments (Canada and Mexico together take about 43% of U.S. dairy exports by value per Cornell research) and U.S. dairy exports to Canada rose from C$525 million in 2021 to about C$877 million in 2024 [8] [3]. USDA and trade analysts note Canada is a top market for U.S. dairy, second only to Mexico [4].
4. Short-term market reactions in 2025: build‑ups and hedging
Market reports for early 2025 show U.S. exporters accelerating shipments of butterfat and anhydrous milkfat to Canada — in part because buyers sought to move product ahead of tariff threats — with large monthly volumes recorded (butter exports up 41% year‑on‑year in January, AMF shipments to Canada surging) [9]. That indicates tariffs or the threat of reciprocal measures can shift timing and product mix even when over‑quota duties remain mostly theoretical.
5. Political messaging vs. economic mechanics
Political claims that Canada “charges 250–270%” on U.S. dairy are technically accurate about statutory MFN rates, but misleading without quota context: those high rates only apply if TRQs are exhausted, which U.S. exporters seldom trigger; Canadian officials and fact‑checkers stress that no U.S. dairy shipments had been subject to those higher rates as of mid‑2025 [2] [7] [10]. Both sides use headline percentages to support domestic constituencies: U.S. producers push for market access; Canadian politicians defend supply management [11] [12].
6. Economic impact: limited direct barriers, meaningful political risk
Available reporting shows the direct economic barrier from Canadian over‑quota tariffs has been limited because quotas aren’t filled; nonetheless, protectionist rules and quota administration practices have prompted multiple USMCA disputes and ongoing frictions that raise commercial and political risk for exporters [13] [14]. Studies and extension analyses find USMCA represented “meaningful trade liberalization” relative to pre‑USMCA levels, but quota underutilization and administrative hurdles remain concerns [8] [6].
7. What to watch through 2025–2026
Watch TRQ fill rates, administrative rule changes (including re‑export and processing programs), and dispute rulings: Ottawa’s 2025 TRQ adjustments under CPTPP resolutions and any USMCA panel outcomes can change effective access in 2026 [14] [15]. Also monitor U.S. tariff threats or reciprocal measures — these shift buying behavior and could boost short‑term shipments or trigger formal retaliation even when over‑quota tariffs remain unused [16] [12].
Limitations and competing views: sources converge that statutory Canadian over‑quota tariffs are very high but differ on their practical bite — Canadian government and fact‑checks emphasize quotas prevent those tariffs’ application, while U.S. industry and some analysts argue quota administration and program rules effectively restrict access and justify political complaints [7] [2] [13]. Available sources do not mention long‑term bilateral negotiation outcomes past July 2026 or final quantitative impacts beyond 2025 forecasts [14] [15].