Good morning. The federal government is exploring changes to its dairy import rules, edging into a long-simmering dispute that will be a flashpoint in Canada’s renegotiation of the North American trade pact. That’s in focus today – plus, a government shutdown south of the border.

Trade: Canadian softwood producers are being hit with a new 10-per-cent tariff on their lumber shipments into the United States, raising the total levies to more than 45 per cent.

Pharmaceuticals: Pfizer and U.S. President Donald Trump said they had cut a deal in which the U.S.-based drugmaker agreed to lower prescription drug prices in the Medicaid program to what it charges in other developed countries in exchange for tariff relief.

Public service: Nigel Wright, a long-time Onex executive and former chief of staff to Stephen Harper, has died. He was 62.

• S&P Global reports a key measure of Canada’s manufacturing activity for September. Economists expect an eighth consecutive month of contraction.
• The Bank of Canada releases its summary of deliberations from its Sept. 17 meeting.

Ottawa is weighing changes to its dairy import rules just as Canada and the U.S. prepare to reopen the North American trade pact.

The consultations, reported by Globe agriculture reporter Kate Helmore, revive one of the longest-running fights between the two countries: how much U.S. milk, cheese and other dairy products should be allowed onto Canadian shelves.

The decades-long clash has centred on three levers Canada uses to control dairy access: quotas, licences and eligibility rules. Ottawa says these are essential to preserving stability, but Washington sees them as unfair barriers to its farmers.

First, the full cheese wheel:

Expanded access could mean lower prices and more variety for Canadian consumers. But for farmers, it threatens a system that has shielded them from global volatility for generations. Ottawa sees potential concessions as a way to ease tensions with U.S. President Donald Trump ahead of the United States–Mexico–Canada Agreement review, though any change risks backlash from a powerful farm lobby at home.

And for critics of Prime Minister Mark Carney’s trade strategy, any shift in Canada’s supply-management system would mark another major concession without clear returns.

• In August, the Prime Minister removed retaliatory tariffs on some U.S. products and said the two countries are moving to “intensify” discussions around trade challenges in strategic sectors such as metals and lumber. On Monday, Trump hit Canadian softwood producers with a new 10-per-cent tariff, raising the total levies on their shipments to the U.S. to more than 45 per cent.
• In June, on the eve of the Digital Services Tax taking effect, Carney scrapped the levy “in anticipation of a mutually beneficial comprehensive trade arrangement with the United States.” A deal has yet to materialize.

Tariff rate quotas: The whey in is narrow

Canada permits only a small, predetermined amount of foreign dairy to enter tariff-free. Anything above that threshold faces levies that can climb past 200 per cent. These quotas were first established when Canada joined the World Trade Organization in the 1990s, and were maintained under subsequent trade deals.

Ottawa frames TRQs as the backbone of supply management. By capping foreign inflows, the government guarantees Canadian farmers a stable market and predictable incomes.

U.S. exporters argue the quotas choke off demand for their products, ensuring that Canadian consumers never really see the full range of goods that could be competitive on price.

• The dairy industry’s outsized political influence, explained in charts

Import licences: Got a permit? Got milk

Washington says Canada has built in even more restrictive barriers to gain access to that small quota.

Import licences are distributed by the federal government to Canadian companies, which then decide what to buy and from whom. U.S. exporters complain this system forces them to rely on Canadian intermediaries who may not have an incentive to expand imports.

The government argues licences are necessary to administer quotas in an orderly way. U.S. trade officials say the allocation process allows Ottawa to tilt the field in favour of domestic incumbents. Washington has twice launched USMCA disputes over licensing rules, claiming the way Canada distributes licences violates the agreement.

And behind those allocation battles sits an even sharper fight over who is eligible to hold a licence in the first place.

Eligibility rules: For many, a moo point

Ottawa reserves import licences for processors and distributors already inside the domestic dairy system. Retailers and food-service firms – the customers U.S. exporter