Implemented in the 1970s, it protects Canadian farmers in three ways: by setting high, stable prices for the country's dairy products; by limiting the amount of milk farmers are allowed to produce; and by imposing high tariffs on dairy products coming into Canada, in order to safeguard the domestic market.
Trump said during a speech Tuesday in Kenosha, Wisconsin, that Canada has been "very unfair" to dairy farmers and "we're going to start working on that".
"The facts do not bear this out".
U.S. Sens. Charles Schumer and Kirsten Gillibrand are requesting President Donald Trump's attention to a trade matter they say is hurting dairy farms in upstate NY.
The governors say Canada's actions could cost the US economy hundreds of millions of dollars.
After what has been a relatively warm beginning in relations with Canada, which included what was seen by many as a positive trip to Washington by Prime Minister Justin Trudeau, Trump dropped the gloves on Canada's well-guarded dairy sector, one of the sacred cows of Canadian industry.
In Canada, through supply management, quotas for milk are set for producers and demand is met with little surplus.
The president then broke from a prepared statement to attack Canada's dairy, energy and lumber industries. Cayuga Milk Ingredients in Auburn, New York, said it also lost all of its Canadian exports, a source of about 30% of overall sales.
Canada's dairy industry was less protectionist than its US counterpart, the ambassador said in the letter. "The implementation of Class 7 does not block imports, or restrict American access to the Canadian market - Canadian businesses are still free to choose their own suppliers, just like American companies do".
Dairy farmers say they are confident that the government has their backs, but are concerned that any potential concessions on dairy in a renegotiated NAFTA could lead to significant job losses. Dismantling it would mean lower prices at the supermarket, and a more internationally competitive industry, says the paper.
"As the report unequivocally indicates, Canada does not contribute to this overproduction", the ambassador insists.
Earlier this month, Isabelle Bouchard, spokesperson for the Dairy Farmers of Canada, said Canada was being used as "a scapegoat" for the financial woes facing dairy farmers in the U.S.
He said the trade balance on dairy "massively" favours the U.S.by a five-to-one margin. "He's under the impression that every time he speaks, people are going to jump and that's not how it works".
"We're going to call Canada and we're going to say 'What happened?' We're going to get the solution", he said before turning his attention to the North American Free Trade Agreement that's the source of at least some of the U.S.
Why does the US care so much about it? While he doesn't see the policy being reversed, he's hopeful the US government will use it as a bargaining chip when renegotiating NAFTA.
"The whole thing is ridiculous".
The Trump administration has yet to give Congress a required 90-day notification that it plans to open negotiations on NAFTA with Canada and Mexico.
Trump later announced that "we're going to have to get to the negotiating table with Canada very, very quickly...this is another NAFTA disaster, and we're not going to let it continue onward".