‘Tariff’ is ‘the most beautiful’ word, US president Trump has said not once – but few could venture when or if he would go through with imposing import tariffs on Mexico and Canada, the US’ closest trade partners.
It didn’t take a day since he was sworn in for a second term to find out just how soon he’d like those tariffs to kick in. “I think from February 1,” the president told the press on Monday, January 20, 2025.
Back in November 2024, Trump pledged to introduce 25% import duties on goods from Canada and Mexico, a move that could put key commodities including dairy in the crosshairs of a trade war.
Since president Trump’s announcement, both Canada and Mexico have alluded to possible retaliatory measures.
Canada’s finance minister Dominic LeBlanc said on Monday that it would be ‘a mistake’ if tariffs were imposed, and that his country ‘is absolutely ready to respond to any one of these scenarios’.
Meanwhile, Mexico’s president Claudia Sheinbaum has suggested that ‘one tariff would be followed by another in response’ – though she had also indicated that the country is prepared to cooperate with the US to tackle migration and drug trafficking, two of the cornerstones of Trump’s presidential promises.
But what’s at stake when it comes to dairy trade?
In numbers: How the US, Mexico, and Canada trade
Mexico was the biggest export market for US dairy in 2024: around 576,000mt of product was shipped, according to USDEC data. In comparison, the second-biggest destination was Southeast Asia (395,000mt) and the third was China (311,000mt).
Cheese has become an increasingly important commodity: US cheese exports to Mexico increased 36% year over year in August 2024, according to USDEC. But demand for milk powder has also firmed up, with Mexico being the leading destination for US skim and non-fat powder in 2024 and the second-largest for whole milk powder, behind only South America.
Since 2013, US dairy trade with Mexico has nearly doubled (up 42% to 2023), with a total value of more than $2.3bn. Mexico buys more than 25% of US dairy exports while the US supplies over 80% of Mexico’s annual dairy product deficit.
Canada was only the 8th largest export market for US dairy exports in volume terms (82,500mt for 2024, ahead of New Zealand and Australia, MENA, South Asia and Europe. Canada is also the biggest export market for US butter.
In value terms, US dairy trade with Canada has expanded 63% over the past decade, to a value of $1.09bn.
For 2023, Canada exported around 83,800mt of dairy to the US, worth CA$ 293,250,317. That year, cheese was the biggest export in value terms at CA$98,754,635 but in volume terms, it was whey, at 37,400mt.
Mexico and Canada are also the two top US agricultural export markets for FY24, according to ERS data; valued at around $30bn each.
Tariffs threaten all three economies
Even though the measures are aimed at strengthening the US domestic market, Trump’s plan to introduce blanket tariffs on Canada and Mexico poses a threat for all three countries.
According to the Peterson Institute for International Economics (PIIE), 25% tariffs on all goods would slow growth and accelerate inflation across the board, plummeting the US GDP by $200bn; shrinking Canada’s economy by $100m, and knocking 2% off Mexico’s growth rate.
In dairy, there are significant investment opportunities at stake. US dairy is investing around $8bn in processing facilities to enable market expansion that is expected to add 20 million pounds of milk per day – making export markets even more important.
For all sides, the US-Mexico-Canada Agreement (USMCA) free trade agreement – forged during Trump’s first term – has been essential to improve trade and profitability in dairy and beyond.
With the USMCA up for re-negotiation in 2026, analysts view Trump’s tariff plans as a plot to gain leverage and potential concession for the US from major trade partners. PIIE’s Warwick J. McKibbin and Marcus Noland note that imposing tariffs now would be akin to ‘blowing up’ the existing agreement that Trump himself signed.
It remains to be seen, however, how that proverbial tug-of-war would play out.
