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Title:: Measurement, impact and policy implications of trade policy uncertainty

Author(s):: YU Miaojie; ZHU Huihuang; China Center for Economic Research & National School of Development, Peking University, Beijing 100871, China

Keywords:: international economics and trade; literature review; trade policy uncertainty; investment; real option model

Abstract:: At present, with the intensified trade protectionism, global trade policy uncertainty is rising. Thus, it is necessary to analyze the impact of trade policy uncertainty on the economy. This paper reviews recent research on trade policy uncertainty from three dimensions: the measurement of trade policy uncertainty, the impact of trade policy uncertainty and its policy implications. Trade uncertainty refers to factors that substantially affect company exports beyond tariffs. In actual economic activities, even when the average tariff has not changed, if the trade policy uncertainty rises sharply, it will lead enterprises to delay investment and become unlikely to export to new markets, which will have severe consequences on the economy. Furthermore, we find that maintaining a stable tariff policy and signing trade agreements can help the country to reduce trade policy uncertainty, therefore enhancing company exports and driving economic growth. When a government decides to implement a tariff threat, consideration should be given to potential increase of the country’s trade policy uncertainty, resulting in additional welfare losses.