The Heterogeneous Effects of Trade Policy Uncertainty: How Much Do Trade Commitments Boost Trade?

Abstract

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

An Economic Analysis of the US-China Trade Conflict

“…In our simulations the third ingredient, the economic cost of uncertainty, is based on calculating the trade cost equivalent of the negative effect of water in the tariffs as estimated by Osnago et al (2018). The first two inputs are more difficult to obtain and thus make projections about the impact of TPU complicated: it is unknown what probability exporters and investors assign to potential further tariff increases and which higher tariff scenario they envisage.…”

“…Therefore, we do not assume a fall in TPU as a result of the Phase One Agreement. Osnago et al (2018) and Jakubik and Piermartini (2019) Table 4 displays the average increase in fixed exports costs and the equivalent increase in iceberg trade costs in the two TPU scenarios. The table makes clear that the average global trade cost increase is relatively limited ranging between 1.5% and 3.1%.…”

An Economic Analysis of the US-China Trade Conflict

“…The first two inputs are described in Section 6.4 of the main text. The determine the economic costs of changes in expected future trade policy, the gravity estimates on the negative trade effects of tariff water in Osnago et al (2018) are employed. Tariff water can be used as a proxy for tariff uncertainty, since it allows countries to raise tariffs within the rules of the multilateral trading system above the applied levels up to the bound levels.…”

“…and are exporter and importer specific terms, iceberg trade costs, fixed trade costs and and are respectively the Shape parameter of the Pareto distribution and the substitution elasticity between varieties. Denoting as the estimated coefficient on water in the tariffs from Osnago et al (2018), as the expected change in tariffs, and the change in probability of a tariff increase, the ad valorem and fixed cost equivalent can be defined as follows:…”

Trade policy shocks in the UK textile and apparel value chain: Firm perceptions of Brexit uncertainty

“…Scholarly work has shown that this industry has the largest projected percentage decrease in output and value added in exports under any Brexit scenario (Fusacchia et al, 2019;Gasiorek et al, 2018). Additionally, this mature and labor-intensive sector, usually dominated by micro and small firms and highly integrated in GVCs with a large share of imported intermediate goods, can be included amongst those industries most exposed to trade policy uncertainty (Douch et al, 2019;Osnago et al, 2018). Undoubtedly, both TPU and the final UK withdrawal from the EU, either in a deal or nodeal scenario, have the potential to bring several challenges to the UK T&A industry and its value chain.…”