US-Canada trade war squeezes farm goods as whey ban, tariffs bite

A dairy fight that became a trade war

The latest phase of the US-Canada trade war began with dairy, and dairy has taken some of the hardest hits. On July 20, President Donald Trump signed proclamations under Section 338 of the Tariff Act of 1930. That Depression-era law lets a president impose tariffs of up to 50% on a country he finds is discriminating against US commerce.19 Talks between the two countries fell apart shortly before a midnight deadline. A 50% duty on roughly $20 billion of Canadian goods then took effect on August 22, and it applies even to products that comply with the US-Mexico-Canada Agreement (USMCA, called CUSMA in Canada).31 The White House cited Canadian treatment of US autos, alcohol and dairy as the reasons.5

Ottawa answered with tariffs of 15%, 25% and 50% on C$27.6 billion of US goods, starting September 8. The rates were set to match the US measures dollar for dollar.3 Washington escalated again. A ban on certain Canadian whey and molasses products, non-alcoholic beer, many alcoholic drinks and motorcycles over 800cc took effect September 29.21 Unlike a tariff, a ban leaves no price at which the goods can enter.25

The headline figures differ depending on where you look. Most outlets put the US action at about $20 billion in US dollars, and Canada's Finance Department calls the matching amount C$27.6 billion.223 One security think tank used US dollars for both sides, which overstates the totals.4 Sources also differ on when the dairy duties started. University of Wisconsin economists date the US dairy tariffs to August 19, while most other reports use August 22 for the wider package.191 Those gaps don't change the basic picture: matching retaliation, with farm goods in the middle of it.

What is actually tariffed

The dairy lists are narrower than the political rhetoric suggests. Canada's retaliation puts 50% on US milk powders, concentrated milk, whey, casein and other milk proteins. It puts 25% on many cheeses and 50% on honey, molasses, some baking mixes and frozen doughs.20 The Wisconsin extension analysis notes that neither country tariffed butter, fluid milk and cream, yogurt or ice cream.19 That matters because butter is the largest single US dairy export to Canada, at $228 million in 2025.19

By Wisconsin's count, US dairy sales to Canada were about $1.3 billion in 2025, or 14% of US dairy exports. Only about $255 million of that falls into tariffed categories that can be measured at customs value.19 Canada's surtax also hits product that comes in within its USMCA quotas, which had entered duty-free since the agreement took effect.19

Cheese went from a gap in the US measures to a target. Canada tariffed US cheese even though the original US action left Canadian cheese alone, despite Washington citing Canada's cheese-quota rules as its grievance.19 By September 29, Washington had added 50% duties on certain Canadian cheeses as well.26

Farm goods outside dairy are also caught up. Canada's list covers agricultural equipment.2 The original US proclamations targeted Canadian honey, fruit and vegetable seeds, salt and essential oils.12 Potash, the fertilizer input US farmers rely on, was left out of the US tariffs.17

Who pays: the price question

The reporting disagrees most on prices, and the disagreement makes sense once you separate the two sides of the border.

For US dairy farmers, the risk is lower prices, not higher ones. The Food Institute reported that the Canadian duties could leave extra product in the US market and push prices down.13 The Wisconsin analysis puts numbers on it. If the tariffs last, US farm milk prices could fall by about $0.20 to $0.35 per hundredweight, within a wider range of $0.10 to $0.50.19 The effect works through cheese and dry whey prices, which set the Class III milk price. Wisconsin is especially exposed, with an estimated $65 million to $113 million a year in lost farm milk revenue.19 The same economists note that the two sides' tariffs push US prices in opposite directions, so the overall effect is uncertain.19

For consumers, most analysts expect higher prices, but slowly and only in part. Civil Eats said the July tariffs would probably add to food costs, and pointed to research estimating that tariff-driven price rises cost US households about $1,000 last year.12 An industry executive told the Food Institute that shoppers would end up with less choice and higher prices.13 A University of Alberta economist expects the burden to fall on both countries, but not evenly.30

Bank of Canada research on the 2025 counter-tariffs, cited by Retail Insider, suggests the effect may be smaller than the headline rates. Prices of tariffed goods rose gradually to about 6% above comparable untariffed goods. That is roughly a quarter of the 25% tariff, with the rest absorbed along the supply chain.20 This year's list is weighted toward ingredients rather than familiar shelf products, so much of the cost will show up first as squeezed margins for food processors.20

Ottawa has tried to limit the damage at home. It extended a remission order so that US goods used in Canadian manufacturing, processing, farming or packaging can avoid the surtax. High-protein whey concentrates and isolates have their own specific relief.24 The US National Milk Producers Federation confirmed that goods sold directly at retail in Canada still pay the full counter-tariff.26 In practice, a US block of cheese headed for a Canadian grocery shelf can face a duty that a pallet of whey headed for a Canadian factory may avoid.

The overall size remains disputed. Farm Credit Canada estimates that if the measures last a full year, they could cost Canadian food and beverage manufacturers C$260 million to C$500 million in tariffs. Food manufacturing sales rose 4% in the first half of 2026, mostly because of higher prices rather than higher volumes.18 The tariffs arrive on top of rising energy costs linked to the Iran war, which small producers describe as a compounding squeeze on inputs.9

The human scale of a "small" dispute

Analysts agree that the overall economic effect is modest. The tariffs cover about 5.5% of bilateral goods trade.10 The American Action Forum puts the September ban at about $967 million of Canadian imports, mostly alcohol, against roughly $880 billion in annual two-way trade.22

For individual businesses, the losses are much larger. In British Columbia, dairy farmer Casey Pruim says US sales have largely stopped since August. If processors need less milk, farmers could be forced to dump it or cut their herds.1 Perishable milk is a particular problem. It is collected on a fixed schedule, and processors' demand can fall much faster than farmers can cut production.1 On the US side, Vermont cheesemaker Mateo Kehler says Canadian tariffs and consumer boycotts have reduced his exports to zero.17 A Canadian protein-snack maker borrowed money to stockpile six months of US whey before the September 8 deadline, because pea protein cannot simply replace it without reformulating products.7

One trade lawyer argues the ban changes less than it appears to. At 50%, the tariffs were already making many of those imports uneconomical.22 That is true for products that had already stopped flowing. It matters more for exporters with few other markets, for whom a buyer willing to pay a tariff was still a lifeline.30

Where this goes next

Both governments are now openly divided, and so is the US farm lobby. FoodNavigator reports that dairy and steel groups back aggressive US action, while broader agriculture groups warn it could cost them Canada, America's second-largest farm export market.1117 Even the National Milk Producers Federation, whose quota complaints helped start the fight, now says it wants Canada back at the negotiating table rather than "an ever-escalating trade war."26

There are few signs of that happening. Trump said on October 5 that he is "in no rush" to restart talks and repeated accusations that Canada has been "ripping us off."21 He has claimed Canada charges US farmers tariffs of "400% or more."8 The real over-quota rates are about 241% to 298%, and US dairy exporters do not pay them because shipments stop at the quota limits.19 Prime Minister Mark Carney says Canada is ready to negotiate in good faith, but he has not ruled out more retaliation.22 Canada's 2025 law barring new dairy access in future trade deals also limits what Ottawa can offer.28

The most likely outcome is a long stalemate rather than a quick deal. One trade lawyer expects the standoff to last months, because the damage so far is not enough to force either side back to the table.22 The US Trade Representative's decision to open consultations for a 2027 USMCA joint review keeps the dairy dispute tied to the future of the whole continental trade pact.23 Until then, the costs land unevenly: on dairy farmers in Wisconsin and British Columbia, small food processors, and shoppers paying slightly more for fewer imported choices. Earlier rounds suggest it could take nine to 12 months after any truce for those price effects to fade.4