Tariff Caps and US Agricultural Trade

The United States maintains relatively low tariffs on imports of agricultural products compared to global standards. As our analyses show, the Ad‐valorem tariff of the United States on agricultural imports is roughly 4%–5% compare to Japanese duty, for example, exceeding to 25%. World Trade Organisation (WTO) introduced the notion of tariff cap defined as the maximum limit of a tariff that can be imposed on any importing commodity. This paper presents a theoretical framework to analyse the impact of a tariff cap on agricultural trade including the theory of an optimal cap. Utilising a Tobit model on the 2021 WTO dataset at the Harmonised System (HS) six‐digit level, we find that the introduction of new tariff lines within the agricultural sector has had little or no effect on reducing binding overhang, as still a gap remains between bound and applied tariffs for the US. The average Ad‐valorem duty and the proportion of duty‐free commodities within a sector are shown to negatively influence the extent of binding overhang. Conversely, import volumes increase the likelihood of binding overhang, highlighting a positive relationship between trade volume and tariff flexibility. A tariff cap has a limited impact on the US's ability to adjust tariffs in agriculture, further liberalise agricultural trade, or collect revenue from primary agricultural products. Therefore, in practice, the cap on tariffs has a negligible effect on US imports but holds a significant promise for enhancing US export opportunities. From policy perspective, negotiations within the WTO aimed at reducing tariff caps could potentially boost the United States' prospect to gain from international agricultural trade.