Smoke in the (Tariff) Water

17 Pages Posted: 1 Mar 2011

See all articles by Liliana Foletti

Liliana Foletti

University of Geneva

Marco Fugazza

United Nations - Trade Analysis Branch

Alessandro Nicita

World Bank - Development Research Group (DECRG)

Marcelo Olarreaga

University of Geneva; Centre for Economic Policy Research (CEPR)


As the economic crisis deepened and widened, fears of a return to the protectionist spiral of the 1930s become more common. However, an important difference between the 1930s and today is the existence of the World Trade Organization and the legal limits it imposes on the protectionist responses members can pursue. The first objective of this paper is to assess the extent to which applied tariffs can be legally raised without violating bound tariff obligations and compare it with what is economically feasible. The second objective is the examination of whether individual countries have taken advantage of these legal tariff hikes as protectionist responses during economic crises, after the creation of the WTO. Results suggest that the policy space left when looking at what is economically possible is indeed quite large. However, in the recent past little of the available policy space has been used by countries suffering from an economic crisis.

Suggested Citation

Foletti, Liliana and Fugazza, Marco and Nicita, Alessandro and Olarreaga, Marcelo, Smoke in the (Tariff) Water. The World Economy, Vol. 34, No. 2, pp. 248-264, 2011, Available at SSRN: or

Liliana Foletti (Contact Author)

University of Geneva ( email )

102 Bd Carl-Vogt
Genève, CH - 1205

Marco Fugazza

United Nations - Trade Analysis Branch ( email )

Palais des Nations
Office E 8074
Geneva, 1211

Alessandro Nicita

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
Washington, DC 20433
United States
202-473-4066 (Phone)
202-522-1159 (Fax)

Marcelo Olarreaga

University of Geneva ( email )

40 Boulevard du Pont-d'Arve
Genève, CH - 1205

Centre for Economic Policy Research (CEPR) ( email )

United Kingdom

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