Does Trade Policy Uncertainty Affect Global Economic Activity?

Abstract

We study the effects of unexpected changes in trade policy uncertainty (T P U ) on the U.S. economy. We construct three measures of T P U based on newspaper coverage, firms' earnings conference calls, and aggregate data on tariff rates. We document that increases in T P U reduce investment and activity using both firm-level and aggregate macroeconomic data. We interpret the empirical results through the lens of a two-country general equilibrium model with nominal rigidities and firms' export participation decisions. In the model as in the data, news and increased uncertainty about higher future tariffs reduce investment and activity.

Time-Varying Spillover of us Trade War on the Growth of Emerging Economies

“…The only other paper to have looked into this issue is that byCaldara et al, (2019b), who indicate that that trade uncertainty of the US negatively impacts the growth rate of industrial production in emerging economies. But, these authors use a constant parameter model, and hence cannot provide a time-varying analysis.2 The reader is referred toGrossman et al, (2014) for further details.…”