Smoke in the (Tariff) Water

• Published in: World economy 2011-02, Vol.34 (2), p.248-264
• Main Authors: Foletti, Liliana, Fugazza, Marco, Nicita, Alessandro, Olarreaga, Marcelo
• Format: Article
• Language: English
• Subjects: Economic conditions; Economic Crises; Economic crisis; Fear; Free trade and protection; International organizations; International trade; Left Wing Politics; Obligation; Protectionism; Regulation; Studies; Tariff; Tariff policy; Tariffs; Trade policy; Trade relations; Violations; Water; World Trade Organization; WTO
• ISSN: 0378-5920; 1467-9701
• DOI: 10.1111/j.1467-9701.2010.01318.x

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.