Rain, Agriculture, and Tariffs

This paper examines whether and how
rainfall shocks affect tariff setting in the agricultural
sector. In a model of strategic trade policy, the authors
show that the impact of a negative rainfall shock on optimal
import tariffs is generally ambiguous, depending on the
weight placed by the domestic policy maker on tariff
revenue, profits and the consumer surplus. The more weight
placed on domestic profits, the more likely it is that the
policy maker will respond to a rainfall shortage by reducing
import tariffs. These findings are robust to alternative
assumptions about market structure and the timing of the
game. Using detailed panel data on applied tariffs and
rainfall for 70 nations, the authors find robust evidence
that rainfall shortages generally induce policy makers to
set lower tariffs on agricultural imports.