Changes in the Distribution of Access to US Cheese Could Squeeze Canadian Dairy

August 18, 2026 – With threatened 50 percent US tariffs set to take effect tomorrow, a new C.D. Howe Institute working paper examines the dispute over Canada’s cheese tariff-rate quota (TRQ) allocation system, finding that changes sought by the United States could impose costs on Canadian dairy processors and, ultimately, dairy producers.

In “A Slice of the Market: Canada-US Tensions over Cheese Import Permits,” author Al Mussell examines the trade-offs of changing Canada’s cheese import permit system in response to the US, finding that changing the allocation system could improve access for US cheese exporters, but could also reshape the balance of power in Canada’s dairy market and set a broader precedent for Canada-US trade.

“Giving retailers greater access to imported US cheese might provide more opportunities for US exporters, but it would also give large grocery chains even greater leverage over Canadian processors, which already face pressure from a concentrated retail market,” warns Mussell, a Fellow-in-Residence and Trade and Supply Chains Policy Scholar at the C.D. Howe Institute. “These costs are unlikely to reside permanently with Canadian dairy processors and eventually would be passed back to farmers.”

According to the report, in Canada, dairy imports are managed through TRQs, which allow a specified volume of imports to enter at a lower or zero tariff, with higher tariffs applying above the quota. Under the current system, Canadian importers are predominantly dairy processors.

The US view is that it has not obtained the level of dairy and cheese market access it anticipated under the Canada-US-Mexico Agreement (CUSMA). However, the report finds that high fill rates for Canada’s cheese TRQs do not appear to validate concerns about the overall volume of market access. Rather, the US concern appears to centre on access to higher-value and premium cheese products and perceived limitations created by Canada’s allocation of TRQs.

According to the paper, the US threat to impose tariffs under section 338 of the US Tariff Act rests partly on the argument that Canada discriminates against US cheese by allocating cheese TRQs differently from the approach used under the Comprehensive Economic and Trade Agreement (CETA) with the European Union. But the allocation system under CUSMA was negotiated after CETA, and Mussell notes that the US agreed to those terms.

The report finds that Canada could work with the United States on changes to cheese TRQ allocation without necessarily contravening Bill C-202, which is designed to prevent increases in dairy import quotas or reductions in tariffs through trade negotiations. However, any agreement should weigh the potential benefits of greater access for US products against the costs to Canada’s dairy sector, as well as the broader implications for Canada-US trade policy.

“The bigger issue is what this means for Canada-US trade more broadly,” says Mussell. “If Canada concedes an arrangement that the two countries negotiated because of the threat of tariffs, and was settled in a trade dispute, it could set a troubling precedent for the stability and predictability of our trade relationship.”

Read the Full Report

For more information, contact: Al Mussell, Fellow-in-Residence, Trade and Supply Chains Policy Scholar, C.D. Howe Institute and Research Lead, Founder, Agri-Food Economic Systems, Inc; and Raquel Schneider, Communications Officer, C.D. Howe Institute, 647-805-3918, rschneider@cdhowe.org. 

The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada’s most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.

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