Ottawa hits U.S. cheese with 25 per cent and milk powder, whey and casein with 50 per cent from Tuesday, turning the sector Washington most wants opened into the sector Canada has now closed hardest.
By the Canada Trade Desk | Peacock Tariff Consulting
OTTAWA, September 7, 2026 – Of all the sectors on Canada’s counter-tariff list, dairy is the one with a history.
At 12:01 a.m. on Tuesday, September 8, Canada applies a 25 per cent surtax to essentially every named category of American cheese and a 50 per cent surtax to American milk powder, cream concentrates, whey, whey protein concentrate, casein and milk albumin. The measures form part of the package Finance Minister Francois-Philippe Champagne announced on August 25 covering 629 tariff items and roughly $27.6 billion in annual U.S.-origin imports, calibrated to match American rates “dollar for dollar, rate for rate.”
Dairy is not a large share of that list by tariff line count. Gowling WLG’s August 26 analysis ranked it behind iron and steel and machinery and equipment. But it is the sector where the countermeasure carries the most political freight, because American access to Canada’s dairy market was among the explicit grievances cited when Washington imposed 50 per cent tariffs on $27.6 billion of Canadian goods on August 22, and because dismantling Canada’s supply management system was reportedly among the demands that ended the talks.
Ottawa’s answer, effective tomorrow, is a tariff wall on top of a tariff wall.
What is covered
The dairy lines split cleanly across two rate bands.
At 50 per cent: HS Chapter 04 milk powder and cream concentrates under heading 04.02, and whey and whey protein concentrate under heading 04.04. Also at 50 per cent, under HS Chapter 35, casein, milk albumin and other milk protein substances classified in heading 35.01 and adjacent lines.
At 25 per cent: HS 04.06 cheese and curd, comprehensively. The list runs through fresh cheese, grated and powdered cheese, processed cheese, and then names the varieties individually. Cheddar. Mozzarella. Parmesan. Romano. Brie. Camembert. Gouda. Swiss and Emmental. Gruyere. Havarti. Provolone. Blue-veined cheeses. And the residual “other cheeses” category that catches anything the drafters missed.
Trade publication Cheese Reporter, covering the announcement on August 28, summarized the effect as 25 per cent tariffs on a variety of cheeses and 50 per cent tariffs on a variety of whey, casein, milk and other dairy products.
The rate split is not arbitrary. It reflects the mirror principle Finance Canada applied throughout the package, matching each Canadian line to the corresponding American rate on the equivalent Canadian good. Where Washington applied 50 per cent, Ottawa applied 50 per cent.
The same structural rules that govern the rest of the package apply here. The surtaxes attach only to goods that are products of the United States under the Determination of Country of Origin for the Purpose of Marking Goods (CUSMA Countries) Regulations, a test distinct from and generally less demanding than CUSMA preferential origin. There is no CUSMA exemption. Goods in transit to Canada on September 8 escape the measures entirely, provided the importer can document transit status.
Two different Canadian industries, two different problems
The instinct is to read a dairy counter-tariff as protection for Canadian dairy farmers. That is roughly true at the 25 per cent cheese band and considerably less true at the 50 per cent ingredient band, and the distinction matters commercially.
Cheese imported from the United States competes directly with Canadian cheese in Canadian retail and foodservice channels. A 25 per cent surtax on that flow does what Ottawa says the package is designed to do: it puts Canadian producers “on a better competitive standing against U.S. products in the Canadian market,” in the words of the August 25 news release. Canadian processors who make cheese benefit. Canadian buyers of specialty American cheese, primarily foodservice operators and specialty retailers, pay more or substitute.
The 50 per cent band is different. Milk powder, whey protein concentrate, casein and milk albumin are industrial inputs. They go into protein beverages, nutritional supplements, bakery products, processed foods, confectionery, infant formula and pet food. A substantial number of the Canadian firms that buy them are food manufacturers, not dairy processors, and for those firms the surtax is a straight input cost increase with no offsetting benefit.
Whether a domestic or third country substitute exists depends on the specification. Commodity skim milk powder is broadly available. A particular whey protein isolate meeting a particular functional and regulatory profile may not be, and reformulating a food product is a matter of quarters, not weeks.
This is precisely the fact pattern Ottawa’s remission framework was written for. Finance Canada has indicated it will consider remission requests where goods used as inputs cannot reasonably be sourced domestically or from non-U.S. sources, or where exceptional circumstances would cause severe adverse impacts on the Canadian economy. There is no pre-implementation exemption process, so affected manufacturers pay first and argue afterward, unless their goods fall under the existing United States Surtax Remission Order (2025), in which case relief can be claimed at importation using the authorization codes in CBSA Customs Notice 25-19.
Food manufacturers should be assembling that file now: tariff classifications, import volumes and values, documented evidence that alternative supply was sought and was unavailable or non-equivalent, and a quantified cost impact.
The system underneath
Canada’s dairy sector does not operate on ordinary tariff logic, and understanding why requires understanding supply management.
Established in the 1970s, the system regulates production of dairy, poultry and eggs through provincially administered quota. Farmers purchase and hold production quota tied to forecast domestic demand. Marketing boards set producer prices on a cost-of-production basis. And the domestic price structure is insulated from world markets by over-quota tariffs that in dairy commonly exceed 200 per cent.
Within that architecture, imports enter principally through tariff rate quotas, negotiated volumes that come in at low or zero duty. CUSMA established a set of dairy TRQs granting American exporters defined access. Those quotas, and specifically how Canada allocates them, have been the substantive dispute for years.
The United States and its dairy industry have argued that Canada undermines the negotiated access by allocating the majority of dairy TRQ volume to Canadian processors rather than to distributors or retailers. The practical consequence, in the American telling, is that quota is held by firms whose commercial interest lies in not using it, so American product does not reach Canadian store shelves in the volumes the agreement contemplated.
Canada has contested that characterization. A CUSMA dispute settlement panel issued findings on Canada’s dairy tariff rate quota allocation measures in November 2023, and Ottawa publicly welcomed the outcome. The dispute has nonetheless persisted, because a panel ruling on allocation methodology does not resolve the underlying disagreement about whether the system as a whole is compatible with the access Washington believes it purchased.
That is the background against which the August tariff exchange occurred. President Trump’s proclamations imposing 50 per cent Section 338 tariffs on Canadian goods cited, among other justifications, Canadian discriminatory treatment of U.S. commerce with respect to alcoholic beverages, dairy and motor vehicles. And reporting on the collapsed negotiations indicates that among a list of thirteen American demands was a requirement that Canada “dismantle Canada dairy supply management entirely.”
Ottawa’s account of why talks ended is consistent with that. In its August 25 release, Finance Canada said the United States “proposed new terms that were not in Canada’s best interest, basically, asking too much of Canada, and offering too little in return,” and that Canada “suspended negotiations rather than accepting a bad deal that would undermine Canadian workers, businesses, strategic sectors, and our national interest.”
Supply management has bipartisan legislative protection in Canada and near-unanimous political support. Whatever the economic arguments for reform, and there are serious ones, no federal government in the current Parliament is going to trade it away under tariff pressure. Washington’s demand was, in that sense, a demand that could not be met.
Why the ingredient lines are the sharp end
There is a further wrinkle that explains why Washington’s dairy grievance is more about ingredients than about milk.
American dairy pricing runs through a federal order system in which manufacturing milk used for cheese is priced under a Class III formula tied to commodity markets. When Class III prices fall, U.S. processors have a strong incentive to move surplus solids into export channels, and Canada is the nearest large market with a comparable regulatory and food safety regime. Canada’s supply-managed structure, which sets producer prices on cost of production rather than on world commodity movements, does not transmit those swings, which is precisely the point of the system and precisely the source of the friction.
The consequence is that the categories at 50 per cent under Tuesday’s measures, milk powders and cream concentrates, whey and whey protein concentrate, casein and milk albumin, are also the categories where American export pressure is most persistent. Ottawa has effectively priced that pressure out for as long as the countermeasures stand.
For Canadian food manufacturers, that is protection they did not ask for. They are not competing with imported whey protein. They are buying it. The same instrument that shields Canadian dairy farmers from a solids surplus raises the cost base of the Canadian companies that turn those solids into finished goods, and those companies compete in export markets where no tariff shields them.
That asymmetry is the strongest argument any dairy ingredient importer can put in front of Finance Canada, and it is the same argument that got 254 seafood lines struck from the list in under 48 hours.
Reactions and stakes
Champagne cast the countermeasures as protective in the August 25 release: “Our dollar-for-dollar, rate for rate counter-tariffs as well as a multi-billion dollar support package will protect workers, farmers, families, and businesses as we build a stronger, more resilient, and more diversified Canadian economy.”
Jobs and Families Minister Patty Hajdu was more combative: “Canada has what the world wants, and we will not allow any nation to determine our future.”
Prime Minister Mark Carney said on September 1 that talks can resume “when the Americans stop doing memes, stop throwing shade, stop trying to be tough and start being serious about having those discussions.” He has said American negotiators sought concessions that would have damaged key sectors including automotive, and he pushed back on Commerce Secretary Howard Lutnick’s suggestion that Ottawa collapsed the talks for political reasons, telling reporters in Thunder Bay that “appointed, unelected Cabinet members in the United States are not experts on Canadian politics.”
President Trump wrote on Truth Social that Canada has been “ripping off” the United States for decades and that “I deal with many countries, and Canada is easily the most difficult and unreasonable.”
American dairy trade groups have been comparatively quiet since the counter-tariffs were published, a pattern Manufacturing Dive also observed among U.S. steel and aluminum associations.
The commercial stakes on the American side are meaningful but not catastrophic. Canada is a significant but not dominant destination for U.S. dairy exports, and the categories hit hardest at 50 per cent, powders and proteins, are globally traded commodities with alternative destinations. The categories hit at 25 per cent, specialty and commodity cheese, are more Canada-specific in their commercial logic.
The seafood precedent
There is a reason Canadian food manufacturers should not treat the dairy lines as settled.
Finance Canada published its original counter-tariff list on August 25 with 874 tariff items. On August 26, less than 48 hours later, it published a revised list with 629, removing the entire fish and seafood category under HS Chapter 03, some 254 tariff lines, and adding nine items at 50 per cent covering wood charcoal, printed matter, gypsum board, glass containers and refined copper wire.
The department explained the reversal on X, saying it had made “select adjustments to protect against broader economic harms, including removing seafood and fish products from our list of counter tariffs.” The commercial logic was that Atlantic Canadian processors buy American-caught lobster, crab and groundfish as raw material, add value domestically, and export much of the finished product back to the United States. Taxing the input taxed a Canadian industry, not an American one.
Industry pushed hard and fast. Joanne Losier of New Brunswick Crab Processors told CBC News: “The spotlight was on us for 24 hours, and we didn’t ask for this. We don’t want this. We don’t need this.” Nat Richard, representing Atlantic lobster processors, called the sector “ecstatic” and “relieved.” Gilles Theriault, former president of the New Brunswick Crab Processors Association, said “the whole Atlantic fisheries industry is relieved that this tariff has been taken away from the list.” Champagne told CBC the removal was “the right thing to do.”
The structural parallel to dairy ingredients is exact. A Canadian food manufacturer importing American whey protein isolate for a product line that is partly exported is in the same position the seafood processors were in. Gowling WLG observed that Finance Canada’s revision “underscores that Canada’s retaliatory measures remain subject to ongoing calibration in response to domestic and bilateral developments.”
That is an invitation to make the case with evidence, and quickly.
Prices, and who pays
The consumer effect on dairy specifically is likely to be modest and uneven.
University of Calgary economist Trevor Tombe estimated on September 1 that the retaliation overall will add roughly $4 billion in costs across the Canadian economy and raise average consumer prices by about 0.25 per cent, with households earning under $30,000 losing more than 0.5 per cent of disposable income and a family with children paying roughly $250 more per year. Dairy is a small slice of that.
Most Canadian dairy consumption is domestically produced, so the retail milk, butter and yogurt aisles are largely insulated. The visible effects will concentrate in imported specialty cheese, in protein-fortified packaged foods and beverages where American ingredient costs feed through, and in foodservice menus that rely on particular American cheese specifications.
McMaster University’s Colin Mang told BNN Bloomberg that in Canada’s 2018 counter-tariff round, tariffed items ran roughly 6 per cent more expensive than comparable goods, contributing about 0.3 percentage points to inflation, with retailers absorbing much of the increase. Carleton University’s Ian Lee argued that substitution toward non-American alternatives would further blunt the price effect, and in cheese specifically the substitution set is deep. European, Australasian and domestic product all compete.
The Bank of Canada held its policy rate at 2.25 per cent on September 2 while warning that tariffs and conflict risk pushing inflation higher, leaving little monetary room to absorb a food price shock.
What food businesses should do
For Canadian importers of American dairy and dairy ingredients, the checklist is the same as for the rest of the package but with a shorter fuse, because ingredient inventories in food manufacturing are typically thin.
Match your ten-digit tariff items against Finance Canada’s published list rather than relying on product descriptions. The 25 and 50 per cent bands within dairy are separated by HS heading, and a blended or compound preparation may not classify where a purchasing manager expects.
Determine origin under the CUSMA marking regulations rather than the preferential rules. Gowling WLG’s warning that “more goods are captured than anticipated” under the marking test applies to processed ingredients that may incorporate non-U.S. raw material.
Inventory in-transit shipments and document departure and transit status. On a 50 per cent line, that documentation is worth half of invoice value.
Model the landed cost change and then read the supply contracts. Whether a surtax triggers a price adjustment clause, and which party absorbs it in the interim, is a question most ingredient supply agreements answer poorly.
Check eligibility under the United States Surtax Remission Order (2025) and, if eligible, ensure the Customs Notice 25-19 authorization codes appear on the Commercial Accounting Declaration from the first Tuesday entry. If not eligible, start the exceptional remission file immediately and build it around documented unavailability of substitutes.
Assess the support programs. The August 25 package included $7.5 billion in new and enhanced measures on top of nearly $25 billion already deployed, including $1.5 billion more through the Regional Tariff Response Initiative, a $500 million liquidity stream under the Business Development Bank of Canada’s Pivot to Grow program, a lowered BDC minimum revenue threshold of $1 million that brings smaller food manufacturers into eligibility, $2 billion through the Canada Strong Diversification Fund, and $3.5 billion in Rapid Response Supports for Workers and Employers.
For Canadian dairy exporters, the position is less comfortable than the domestic protection suggests. Supply management is built around serving the domestic market, so export exposure is limited, but processors selling into the United States face the American tariff wall with no Canadian countermeasure that helps them.
Where it goes
Nothing about Tuesday’s dairy measures resolves the underlying dispute.
CUSMA’s first six-year joint review closed on July 1, 2026 without agreement to extend the deal for a further sixteen-year term. It remains in force to 2036 but now requires annual joint reviews, which means the supply management question returns to the table every year rather than once a generation. Dairy access will be on the agenda each time.
Intergovernmental Affairs Minister Dominic LeBlanc and chief negotiator Janice Charette have made repeated trips to Washington in recent weeks, with reporting focused on a revived steel and aluminum quota concept. There is no indication that a dairy arrangement is close, and given that the American ask was reportedly the dismantling of supply management outright, there may be no landing zone to find.
For now, the operative facts are simple. From 12:01 a.m. Tuesday, American cheese entering Canada carries 25 per cent. American milk powder, whey, casein and milk albumin carry 50 per cent. Neither rate has an expiry date. And a list that lost 254 tariff lines in 48 hours last month has already shown it can move again for a sector that makes a documented case.