General Equilibrium Model of Agricultural Trade: An Intertemporal Optimizing Approach with Implications for Tariffication, A

The paper develops a theoretical model such that the performance of the macroeconomy is consistent with optimizing the behavior of rational individuals. It demonstrates that, in principle, it is possible to convert existing trade barriers into tariffs by using the price-gap method. In practice, however, tariff and nontariff barriers are not equivalent; replacing policies that result in a price gap of x percent with a tariff of x percent will generally yield different trade volumes. U.S. farm exports will initially decline in anticipation of a reduction in foreign trade barriers. Current demand for U.S. agricultural exports is likely to decline as rational agents in the foreign agricultural sector reduce current storage and demand increase current production in anticipation of a decline in their domestic prices. U.S. export performance will improve once trade restrictions are actually reduced.