Trade Policy Uncertainty Research Articles

Trade Policy Uncertainty and Innovation: Evidence from China

Trade Policy Uncertainty and Innovation: Evidence from China

Trade Policy Uncertainty and Employment Evidence from Chinese Local Labor Markets

Trade Policy Uncertainty and Employment Evidence from Chinese Local Labor Markets

Time-frequency coherence and quantile causality between trade policy uncertainty and rare earth prices: Evidence from China and the US

This study explores the dependence and causality between rare earth elements prices and trade policy uncertainty of both China and the US at different frequencies and market conditions. To this end, we employ the wavelet analysis and nonparametric causality-in-quantiles tests in the time-frequency domain. Our empirical evidence indicates that the dependence between rare earth elements and trade policy uncertainty is dynamic through time and frequencies. In the long-run (approximately 32–64 months), the correlation between rare earth elements and trade policy uncertainty of China is negative and it's positive in the US. While in the short- and medium-run (approximately 1–32 months), we can only find some weak evidence of association. Moreover, meaningful horizon-specific information can be revealed conditional on the market environment. In normal market conditions, the bi-directional causality-in-mean and in-variance relationship have been found for long time scales. While in short time scales, the significant causality can be found in extreme downside market scenarios. Our results can provide insightful implications for policymakers and investors to make decisions over different investment horizons and market conditions.

Trade Policy Uncertainty, Innovation and Total Factor Productivity

This paper explores the impact of trade policy uncertainty (TPU) shock on China’s total factor productivity. Using economic panel data for China, OECD countries, Hong Kong SAR, Macao SAR, and Singapore from the period 2003–2019, in this paper, we treat U.S.–China trade frictional events in 2016 and 2017 as a quasi-experiment to study the impact of TPU surge on China’s TFP under the synthetic control method (SCM) and generalized synthetic control method (GSCM), treating the OECD countries, Hong Kong SAR, Macao SAR, and Singapore as a control group. We found that TPU surge has a significantly negative causal effect on China’s TFP. SCM analysis, taking 2016 (2017) as the policy implementation time, showed that the average TFP loss borne by China due to trade policy uncertainty in 2017 and 2018 was 2.7% (3.5%). The VAR model showed that China’s trade policy uncertainty reduces China’s TFP through two channels: the shrinking channel of domestic R&D innovation, and the shrinking channel of the domestic sector’s use of foreign patents. This conclusion is robust according to the GSCM. To the best of the authors’ knowledge, this paper is the first attempt to examine the long-term technological impact of TPU surge during U.S.–China trade frictional events. Our findings suggest that trade friction harms technological progress, and reducing TPU can significantly enhance innovation and TFP.

Trade policy uncertainty and improvement in energy efficiency: Empirical evidence from prefecture-level cities in China

In the face of the shocks from trade policy uncertainty (TPU), China needs to improve urban energy efficiency (EE) to achieve its “carbon neutrality” goals as scheduled, but the existing literature has no systematic research on this topic. This paper develops and estimates TPU and EE indexes by adopting the Bartik instrument's methods and dynamic slacks-based measure (DSBM). Furthermore, the authors conduct empirical tests on the influencing effect and transmission mechanism of falling TPU on urban EE after the US granted China permanent normal trade relations (PNTR) status in 2001 with a difference-in-difference (DID) model. The results of the empirical study show that urban EE improves by around 1.9% when TPU falls by 1%. A heterogeneity analysis also shows that a falling TPU has a more significant impact on EE in provincial capitals, open cities, “hygienic cities,” highly marketized cities, and cities with a higher share of manufacturing. Falling TPU reduces the cost of foreign capital inflow into China. It drives progress in green technologies, thus improving urban EE by replacing energy factors with innovation-driven non-energy factors. Further, export expansion and export technology complexity significantly raise the stimulating impact of falling TPU on improvement in EE, but growing processing trade impedes this impact. The findings in this study offer a new perspective on estimating the effect of China's policies to respond to global climate change against the shock from TPU and provides new evidence for strengthening global energy cooperation.

Çin ve ABD’de Ticaret Politika Belirsizliği ve Enflasyon İlişkisi: Bootstrap Rolling Window Yaklaşımı

Two developed countries, namely China and the USA, which have been leaders in world trade in recent years, are making new trade regulations and increasing trade disputes, the intensity of political discourses, the effort to create new trade routes and thus decreasing the possibility of global trade integration, as a result, accumulating academic studies have focused on the study of trade policy uncertainty. For this purpose, in the study, the probable causality relationship between the trade policy uncertainty index and consumer price index data of China and the USA was tried to be determined by the Bootstrap Rolling Window Causality test developed by Balcılar et al. (2010). As a result of empirical studies, it was determined that there is a relationship between CPI and TPU variables in the long term in China and the United States. A one-way causal relationship has emerged from trade policy uncertainty in China to the Consumer Price Index; it has been concluded that there is a two-way causal relationship between trade policy uncertainty and inflation in the United States at certain dates. Considering the findings of the study in which the direction and dates of the causality relationship are determined, it is thought that the study will contribute to the relevant literature. At this point, the main purpose of future studies should be to clearly reveal the relationship between trade policy uncertainty and consumer price index with different econometric methods and examples from different countries.

Does policy uncertainty affect economic globalization? An empirical investigation

ABSTRACT This paper investigates the role of policy uncertainty on indices of economic globalization from 1996 to 2016 in the panel dataset of 142 countries. For this purpose, we use the nine measures of the Revisited KOF Economic Globalization Indices and two new measures of uncertainty: The World Uncertainty Index (WUI) and the Trade Policy Uncertainty Index (TPUI). The findings indicate that both the WUI and the TPUI are negatively associated with the overall index of economic globalization. The benchmark results remain consistent under various model specifications, econometric estimation techniques, and countries at different income levels.

ABD Ticaret Politikası Belirsizliğinin Türk Finansal Piyasalarına ve Banka Kredilerine Etkileri

For many decades, the transmission of uncertainty among countries has been one of the hottest topics in the literature. This study aims to contribute to this literature by studying the impact of the U.S.’s trade policy uncertainty (TPU) on the Turkish stock market, bank loans, and investor sentiment. We employ a non-linear autoregressive distributed lag (NARDL) approach. An existing cointegration between variables is demonstrated. Our findings also show that while the U.S.’s TPU significantly influences both share prices and bank loans, it does not seem to substantially impact Turkey’s investor sentiment in the long run or the short run. This paper demonstrates that the effects of U.S. policies on financial market players and investors in Turkey are not negligible.

Applying a dynamic ARDL approach to the Environmental Phillips Curve (EPC) hypothesis amid monetary, fiscal, and trade policy uncertainty in the USA.

It is well known that unemployment and environmental degradation are two critical issues across the globe. However, there is an extended dearth of literature that explores the nexus between unemployment and environmental degradation. Kashem and Rahman (Environ. Sci. Pollut. Res. 27(101): 31153-31170, 2020) put forward the Environmental Phillips Curve (EPC) hypothesis, which depicts a negative relationship between unemployment and environmental degradation. This study further explores the validity of the EPC hypothesis in the case of the USA. It also investigates the impact of monetary policy uncertainty (MU), fiscal policy uncertainty (FU), and trade policy uncertainty (TU) on carbon dioxide emissions. To this end, the analysis employs the novel methodology of the dynamic ARDL model. The results document that EPC does not hold in the short run, but it does in the long run. Furthermore, both in the short and long run, MU escalates CO2 emissions, while FU plunges emissions in both the short and long run. Finally, TU does not alter the level of CO2 emissions.

Modelling the effect of energy consumption on different environmental indicators in the United States: The role of financial development and renewable energy innovations

AbstractThis study offers new insights into the relationship between energy consumption and environmental degradation in the United States by controlling for financial development, renewable energy innovations, economic expansion, and trade policy uncertainty over the period 1985:Q1 to 2014:Q4. Based on the flexible autoregressive distributed lag model, our findings show that energy consumption deteriorates the environment, while renewable energy innovations reduce CO2 emissions but has no significant effect on ecological footprint. Furthermore, the environmental Kuznets curve hypothesis is valid only when ecological footprint is used as an environmental indicator. The causality results establish a feedback effect between CO2 emissions and renewable energy innovations, a unidirectional causal flow from financial development to CO2 emissions, energy consumption, and economic growth. Also discovered is a unidirectional causal flow from the ecological footprint to energy use and economic growth, and from renewable energy innovations and energy consumption to economic growth. Therefore, the policy implications for this study, among others, include the provision of grants and subsidies for research in renewable energy to enhance sustainable environmental quality.

Trade policy uncertainty and energy intensity: Evidence from Chinese industrial firms

To achieve a carbon-neutral target, alongside the prevailing trade protectionism and the increasing pressure for environmental protection, clarifying the relationship between trade policy uncertainty and energy intensity is particularly important. This paper utilizes the natural experiment of China's World Trade Organization accession to identify reductions in trade policy uncertainty (TPU) and constructs a difference-in-differences model to explore the effect of TPU reduction on the energy intensity of Chinese industrial firms. The empirical results reveal that (1) TPU reduction significantly decreases firm's energy intensity; (2) Export, innovation and technical progress are mechanisms to interpret the decline of energy intensity after the reduction of TPU; and (3) The energy-saving effect of TPU reduction is higher for foreign-funded and privately owned firms than for state-owned firms, higher for coastland firms than for inland firms, and higher for polluting firms than for others. In addition, the degree of marketization and absorptive capacity of technology transfer in regions can increase the effect of TPU reduction on energy intensity. These conclusions provide evidence that decreasing the degree of TPU can help achieve the targets of energy conservation and emission reduction.

Trade policy uncertainty and stock returns

A recent literature has documented large real effects of trade policy uncertainty (TPU) on trade, employment, and investment, but there is little evidence that investors are compensated for bearing such risk. To quantify the risk premium associated with TPU, we exploit quasi-experimental variation in exposure to TPU arising from Congressional votes to revoke China’s preferential tariff treatment between 1990 and 2001. A long-short portfolio designed to isolate exposure to TPU earns a risk-adjusted return of 3.6–6.2% per year. This effect is larger in sectors less protected from globalization, and more reliant on inputs from China. Industries more exposed to trade policy uncertainty also had a larger drop in stock prices when the uncertainty began, and more volatile returns around key policy dates. Our results are not explained by the effects of policy uncertainty on expected cash-flows, investors’ forecast errors, and import competition from China.

Effect of trade and economic policy uncertainties on regional systemic risk: Evidence from ASEAN

How are the Association of Southeast Asian Nations (ASEAN) markets managing global policy uncertainties? Which policy drives regional fluctuations? Although less literature is available on emerging economies, this study fills the gap by investigating the spillover effects of economic and trade policy uncertainty from the US and China on regional systemic risk in ASEAN markets. Using monthly stock returns from ASEAN-5, within a time-varying parameter vector autoregressive approach, this study shows that although policy uncertainty shocks from the US are significant, their effect on ASEAN markets started to wane from late 2013, with China's policy uncertainty overtaking the US as the leading systemic risk contributor. In particular, China's trade policy uncertainty demonstrates the most influential contagion effect on ASEAN markets. The results accentuate the strength of bilateral and trade relations via supply-side shock channels as a key determinant of emerging markets' exposure to policy uncertainty headwinds from global hegemonies.

Trade Policy Uncertainty, Market Return, and Expected Return Predictability

Using the Trade Policy Uncertainty (TPU) index as a proxy for the level of trade policy uncertainty in the U.S. economy, we study the impact of the level of trade policy uncertainty on the conditional mean of market returns. Additionally, we investigate the predictive power of trade policy uncertainty on future market returns. Our findings show that after accounting for business cycle effects, TPU does not impact contemporaneous market returns. However, TPU is a robust predictor of future market returns in both univariate and bivariate regression tests. Specifically, our findings present unequivocal evidence of a positive relation between TPU and expected market returns.

The dynamic relationship between economic policy uncertainty and substantial economic growth in China

PurposeUnder the background of the overall increase of China's economic policy uncertainty and the urgent need for the transformation and upgrading of the substantial economy, this paper studies the time-varying causality between China's economic policy uncertainty and the growth of the substantial economy through bootstrap rolling window causality test, further refines economic policies and studies the causal differences between different types of economic policies and substantial economic growth, refining the conclusions of previous studies.Design/methodology/approachThis paper first studies the causal relationship between China's economic policy uncertainty and substantial economic growth in the full sample period through bootstrap Granger causality test. Then, the paper tests the short-term and long-term stability of the parameters of the VAR model, and it is found that the model parameters are unstable in both the short and long term, so the results of the Granger causality test of the full sample are not credible. Finally, we conduct a dynamic test of the causal relationship between China's economic policy uncertainty and substantial economic growth by means of rolling window, so as to comprehensively analyze the dynamic characteristics and sudden changes of the relationship between them.FindingsThe research shows that economic policy uncertainty in China has a significant inhibiting effect on the growth of substantial economy. Growth in the substantial economy will drive up economic policy uncertainty before 2016 and restrain it after that. In addition, this paper further subdivides economic policy uncertainty to explore the causal differences between different types of economic policy uncertainty and substantial economic growth. The test results show that the relationship between them has obvious policy heterogeneity. The fiscal policy uncertainty and the monetary policy uncertainty, as the main policy means in China, has a significant impact on the growth rate of substantial economy in multiple ranges, but the effect time is short. Although trade policy uncertainty has a significant impact on the growth rate of substantial economy only during the financial crisis, the effect lasts for a long time. The impact of exchange rate and capital account policy uncertainty on the growth rate of substantial economy is mainly reflected after 2020.Originality/valueThe values of this paper are as follows: First, the economic policy uncertainty is combined with the growth of substantial economy, which makes up the gap of previous studies. Second, the economic policy uncertainty is further subdivided. The paper explores the causal differences between different types of economic policy uncertainties and the growth of substantial economy, so as to make the research more detailed. Finally, different from the previous static analysis, this paper uses dynamic model to examine the relationship between China's economic policy uncertainty and the growth of substantial economy from a dynamic perspective, with richer research conclusions.

The USA–China trade policy uncertainty and inference for the major global south indexes

PurposeThe recent dynamics of trade policy, especially that is associated with the United States of America (USA) and China, has not only triggered policy adjustments in two economies, it has also implied an uncertainty spillover to other economies across the globe. Consequently, the current study attempts to examine the effect of uncertainties in the USA–China trade policies on stock market indexes. In addition, the cointegration evidence between the USA–China trade policy uncertainty index and of the leading Global South fragile quintet (Brazil, Indonesia, South Africa, India and Turkey) stock market indices is investigated.Design/methodology/approachMainly, the FMOLS and DOLS Granger causality analysis with cointegration coefficient estimators were employed for the dataset over the monthly data period of March 2003 and July 2019.FindingsAccordingly, the study found a long-term relationship between the USA–China Trade Policy Uncertainty index and the stock exchange indexes. In addition, a causal relationship was established from the change in the USA–China Trade Policy Uncertainty index to the change in the stock market indexes of almost all of the examined countries (Brazil, Indonesia, South Africa, India and Turkey). In addition, the nonlinear Autoregressive Distributed Lag approach further offers evidence of asymmetric relationship among the examined indicators.Originality/valueMoreover, this study contributed to the existing literature because it employed the indexes of BIST100, BOVESPA, BSE Sensex 30, IDX Composite and South Africa 40 in a novel approach. Thus, the study posited a useful policy guideline for associated economic uncertainties arising from the trade dispute, such as the case of the world’s two largest trading giants or partners (i.e. the USA and China).

U.S. TRADE POLICY UNCERTAINTY AND EXPECTED STOCK RETURNS OF CHINESE LISTED COMPANIES

Our study is the first to examine the pricing effect of U.S. trade policy uncertainty (TPU) on Chinese stocks. We estimate the U.S. TPU beta, which measures Chinese stock exposure to the U.S. TPU index. Both portfolio analyses and cross-sectional regressions suggest a significantly negative relation between the U.S. TPU beta and expected returns, which cannot be explained by other pricing factors. The stocks in the lowest U.S. TPU beta quintile can generate 3.48% higher annual returns compared to stocks in the highest U.S. TPU beta quintile. Furthermore, we provide two potential mechanisms that include a real economy channel and a behavioral finance channel using vector autoregression models. Our results indicate that the negative premium can be explained by both demanding more of high TPU beta stocks in hedging against adverse effects from TPU and selling more of low TPU beta stocks due to pessimistic beliefs of noise trader.

Export volatility with trade policy uncertainty: Evidence from China*

AbstractThis paper studies the effect of trade policy uncertainty on firm‐level export volatility. Using data on Chinese exporters around China's WTO accession, we find that a reduction of trade policy uncertainty between China and the United States decreases the volatility of firm‐level export to the United States and increases the volatility of export to the rest of the world. In the aggregate firm level, this shock in trade policy uncertainty has no significant effect on the volatility of total export or the volatility of total sales. Our finding suggests a risk‐sharing effect among export destinations.

The Impacts of Trade Policy Uncertainties on Bilateral Trade Balances of the United States and Japan

This study examines the impacts of trade policy uncertainties on bilateral trade balances (henceforth, BTBs) of the United States and Japan. This is achieved by using the newly created Trade Policy Uncertainty (henceforth, TPU) index and by also applying the recently created non‐linear ARDL approach. The main empirical findings, in summary, are that changes in the TPU index have significant impacts on both countries’ BTBs. Furthermore, while increases in the TPU index in Japan improve US BTB, decreases worsen it. However, increases and decreases in the US TPU index have no impact on Japan’s BTB with the United States. This may lead to the interpretation that Japan’s exporters–importers or Japan’s trade policy are/is not sensitive to changes in the US TPU index, but they/it are/is sensitive to changes in Japan’s TPU index. Based on this result, we may re‐classify (to some extent) Japanese exporters–importers as trade policy uncertainty avoidance people, referring to uncertainty avoidance people by Hofstede (1980), since Japanese are one of the highest uncertainty avoidance people in their socio‐cultural‐economic structure.

Trade policy uncertainty, political connection and government subsidy: Evidence from Chinese energy firms

This paper analyzes the causal relationship between trade policy uncertainty, government subsidies, and the role of political connections using annual data on Chinese energy firms from 2003 to 2018. The results show that when trade policy uncertainty increases, the Chinese government tends to increase subsidies for energy firms, and firms with political ties may receive more subsidies. Furthermore, firms with poor sales performance and in less marketized regions will be granted even more subsidies when uncertainty rises and firms are politically connected. We also observe that subsidies promote firms' fixed asset investments and innovations but decrease their overall investment efficiency.