BOHANON & CUROTT: Trade pacts aren’t only about politics and producers

October 26, 2018

Economic Analysis by Cecil Bohanon & Nick CurottMost public discourse on trade policy centers on its impact on politicians and producers. Recent modifications to the USA-Canada-Mexico trade treaty—now known as the United States-Canada-Mexico Agreement, or USCMA—are no exception.

Take the USCMA’s modifications to the trade in dairy products between the U.S. and Canada. The dairy negotiations were couched as high drama between President Trump and Canadian Prime Minister Justin Trudeau. Canada’s complex system of milk pricing is designed to protect Quebec dairy interests. It has and will continue to effectively limit U.S. dairy producers’ access to the Canadian market. Under USCMA, the United States will be able to export an amount up to 3.6 percent of Canada’s dairy market, up from the existing cap of about 1 percent.

The Washington Post headlines after the midnight deal: “Trump and Trudeau can tout this as a major victory ahead of key elections in their countries.” Agriculture Secretary Sonny Perdue noted the deal “cracks open additional access to U.S. dairy into Canada.” But Washington Post economics correspondent Heather Long reported, “Trudeau held out and got what he wanted: Canada’s dairy supply management system stays mostly intact.” Note the focus on Trump, Trudeau, Quebec and American dairy farmers. Who is missing from the discussion? Xavier.

Xavier? Xavier is an engineering-entrepreneur whose younger brother, Charles, was a Rotary exchange student from France who lived in the Bohanon household a few years back.

Xavier and colleagues have traveled to the U.S. as they advanced their Quebec-based business. On one visit, Xavier admired Mrs. Bohanon’s cheese platter, noting that he could not afford such a luxury in Montreal. Our comparison of cheese prices between Montreal and Muncie was shocking: The plate would cost double in Quebec, even with the weak Canadian dollar. We certainly hope the provisions in the USCMA allow Xavier to get his cheese.

Journalists, commentators and economists routinely ignore consumers in trade discussions. Most fall into the mercantilist thinking, couching international trade as a zero-sum game between our producers and theirs. This is curious coming from the press as U.S. and Canadian consumers number in the hundreds of millions, while producers in any protected industry number in the thousands. Yet, the major beneficiary of freer trade in dairy products is not American farmers but Canadian consumers, like Xavier. Bon appetit!•


Bohanon and Curott are professors of economics at Ball State University. Send comments to ibjedit@ibj.com.


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