Trade

Since the mid-2000s, the value of commercial exports of U.S. dairy products has grown tremendously. Before that, there were sporadic periods of significant dairy exports, but they were often subsidized by the U.S. Government. As the United States has become more of a global dairy market player, the U.S. dairy market has faced greater variability in demand and prices. The United States will compete with other large dairy producers, such as New Zealand, the European Union (EU), and Australia, to increase market share in the future.

There are several reasons for the increase in U.S. dairy product exports over the years. Income growth in East Asia, Southeast Asia, Latin America, and other regions led to an increase in dairy product consumption facilitated by rising global trade. Free trade agreements (FTAs) with various countries have provided the United States with greater access to world markets—especially to Mexico, through the North American Free Trade Agreement (NAFTA). China’s market-based reforms, including those related to its accession to the World Trade Organization in 2001, opened what is now one of the world’s largest markets for dairy product imports. Both the EU and the United States have reduced domestic support and export subsidies for dairy products in recent years, bringing about a greater openness of world markets.

A series of trade negotiations known as the Uruguay Round led to the establishment of the World Trade Organization (WTO) on January 1, 1995. Before establishment of the WTO, the United States employed explicit dairy product import quotas to shield the domestic dairy industry and Federal price support programs from international dairy markets. As a member of the WTO, the United States, along with many other dairy-trading countries, established tariff rate quotas (TRQs) for dairy products. The TRQs allow imports at very low tariffs up to fixed amounts. Any additional imports are subject to very high tariffs. Many of the individual TRQs are administered through licenses for imports of specific products from specific countries or regions. Imports have further been liberalized through FTAs, leading to higher U.S. imports from several countries, especially from Mexico and Australia.

There have been recent developments that have had significant effects on U.S. dairy trade.  In 2018, some key U.S. dairy partners imposed retaliatory tariffs on U.S. dairy product imports in response to U.S. tariffs on various goods. Mexico implemented cheese tariffs on June 5 and then increased them on July 5. Canada implemented yogurt tariffs on July 1. China implemented tariffs on most U.S. dairy products on July 6 and then included tariffs on additional dairy products on August 23. U.S. dairy export growth has been dampened by these tariffs.

On November 30, 2018, the United States-Mexico-Canada Trade Agreement (USMCA) was signed. Under the agreement, Canada would provide new access for U.S. dairy products. Tariffs on agricultural products traded between the United States and Mexico would remain at zero.  Canada would eliminate a pricing structure that allows Canadian processors of certain dairy ingredients (including skim milk powder, milk protein concentrate, and some other types of milk powders) to pay relatively low prices for raw milk from the farm. Before USMCA becomes effective, it must be ratified by the three countries.

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