Canada shouldn't be able to 'change the rules on us,' US Dairy Export Council president says

Key Points
  • In 2016, the U.S. exported nearly $5 billion in milk production.
  • Canada's latest revisions to its milk classification system pose a major threat to American dairy exports.
  • President Trump is known for seesawing on his stance on NAFTA.
Should preserve Mexico relationship, open up markets in Canada: Fmr. Agriculture sec.

Canada shouldn't be able to "change the rules on [the U.S.] in the middle of the game," Tom Vilsack, current head of the U.S. Dairy Export Council, told CNBC.

The former U.S. secretary of Agriculture was referring to a recent decision by Canada's dairy industry to change pricing categories on certain milk products. The action has had the effect of cutting prices Canadian cheese makers pay for dairy ingredients.

Then, after repeated campaign promises to "get tough on trade," President Donald Trump earlier this week moved to slap a roughly 20 percent tariff on softwood lumber entering the U.S. from Canada.

Canadian Prime Minister Justin Trudeau vowed to stand up for Canadian interests after the U.S. imposed the tariffs.

"I certainly agree with the strong language the president has directed toward Canada," Vilsack said in an interview Friday on CNBC's "Power Lunch." Though, he added, "I'm a little concerned about the uncertainty he's created with his NAFTA discussions in Mexico."

Trump should want to make sure he preserves and strengthens America's relationship with Mexico, while opening up the markets in Canada, Vilsack said.

So, what's the solution?

"I think we need to look at the tariffs that Canada currently has, and we need to create a system and structure," one that's more consistent, transparent and stable, he suggested. In fact, "Canadian consumers would benefit most of all," he added, as their product costs would fall.

U.S. dairy farmers are now saying Canada's actions could cost companies in states like Wisconsin and New York millions of dollars.

Since the passage of the North American Free Trade Agreement, or NAFTA, U.S. dairy exports to Mexico have increased more than 550 percent, to $1.2 billion in 2016, making Mexico America's largest dairy customer.

In 2016, the U.S. exported nearly $5 billion in milk production, which has created more than 97,000 jobs in the dairy industry alone.

Canada's recent revisions to its milk classification system should raise serious concerns, U.S. dairy farmers have said.

Last month, Vilsack traveled to Mexico City to meet with dairy industry leaders there. And he has spent time in Asia, where the U.S. dairy industry hopes to grow foreign export markets for its products.

Export markets remain "incredibly important" because U.S. dairy consumption rates aren't keeping pace with our ability to produce milk, Vilsack explained. "There are tremendous opportunities to continue to grow [milk] consumption in Mexico," too, he added — as consumers there transition away from soda products and more toward dairy.

— CNBC's John Schoen contributed to this report.