1932

Abstract

Trade policy uncertainty (TPU) has become an important source of economic uncertainty and research. We review the main sources and measures of TPU. We then provide a conceptual framework for modeling TPU and methods for estimating and quantifying its effects. We analyze its role in trade agreements and discuss open questions for future research.

Loading

Article metrics loading...

/content/journals/10.1146/annurev-economics-021622-020416
2022-08-12
2024-06-17
Loading full text...

Full text loading...

/deliver/fulltext/economics/14/1/annurev-economics-021622-020416.html?itemId=/content/journals/10.1146/annurev-economics-021622-020416&mimeType=html&fmt=ahah

Literature Cited

  1. Ahmad S, Limão N, Oliver S, Shikher S. 2020. Brexit uncertainty and its (dis)service effects NBER Work. Pap. 28053
    [Google Scholar]
  2. Alessandria G, Choi H. 2007. Do sunk costs of exporting matter for net export dynamics?. Q. J. Econ. 122:1289–336
    [Google Scholar]
  3. Alessandria GA, Khan SY, Khederlarian A. 2019. Taking stock of trade policy uncertainty: evidence from China's pre-WTO accession NBER Work. Pap. 25965
    [Google Scholar]
  4. Alessandria GA, Khan SY, Khederlarian A, Ruhl KJ, Steinberg JB. 2021. Trade-policy dynamics: evidence from 60 years of US–China trade NBER Work. Pap. 29122
    [Google Scholar]
  5. Amador M, Bagwell K. 2013. The theory of optimal delegation with an application to tariff caps. Econometrica 81:41541–99
    [Google Scholar]
  6. Amiti M, Dai M, Feenstra RC, Romalis J. 2020a. How did China's WTO entry affect US prices?. J. Int. Econ. 126:103339
    [Google Scholar]
  7. Amiti M, Kong SH, Weinstein D. 2020b. The effect of the U.S.-China trade war on U.S. investment NBER Work. Pap. 27114
    [Google Scholar]
  8. Antràs P, Fort TC, Tintelnot F. 2017. The margins of global sourcing: theory and evidence from U.S. firms. Am. Econ. Rev. 107:92514–64
    [Google Scholar]
  9. Arkolakis C, Costinot A, Donaldson D, Rodríguez-Clare A. 2019. The elusive pro-competitive effects of trade. Rev. Econ. Stud. 86:146–80
    [Google Scholar]
  10. Autor DH, Dorn D, Hanson GH. 2013. The China syndrome: local labor market effects of import competition in the United States. Am. Econ. Rev. 103:62121–68
    [Google Scholar]
  11. Autor DH, Dorn D, Hanson GH, Pisano G, Shu P. 2020. Foreign competition and domestic innovation: evidence from US patents. Am. Econ. Rev. Insights 2:3357–74
    [Google Scholar]
  12. Bacchetta M, Piermartini R. 2011. The value of bindings WTO Staff Work. Pap. ERSD-2011-13 World Trade Organ. Geneva, Switz:.
    [Google Scholar]
  13. Baker SR, Bloom N, Davis SJ. 2016. Measuring economic policy uncertainty. Q. J. Econ. 131:41593–636
    [Google Scholar]
  14. Baldwin R, Krugman P. 1989. Persistent trade effects of large exchange rate shocks. Q. J. Econ. 104:4635–54
    [Google Scholar]
  15. BBC 2002. China-U.S. trade volume increases 32 times in 23 years—Xinhua reports News Release, Febr. 18
    [Google Scholar]
  16. Benguria F, Choi J, Swenson DL, Xu M. 2020. Anxiety or pain? The impact of tariffs and uncertainty on Chinese firms in the trade war NBER Work. Pap. 27920
    [Google Scholar]
  17. Benguria F, Saffie F. 2019. Dissecting the impact of the 2018-2019 trade war on US exports Work. Pap. Univ. Ky. Lexington:
    [Google Scholar]
  18. Bernanke BS. 1983. Irreversibility, uncertainty, and cyclical investment. Q. J. Econ. 98:185–106
    [Google Scholar]
  19. Beshkar M, Bond EW. 2017. Cap and escape in trade agreements. Am. Econ. J. Microecon. 9:4171–202
    [Google Scholar]
  20. Beshkar M, Bond EW, Rho Y. 2015. Tariff binding and overhang: theory and evidence. J. Int. Econ. 97:11–13
    [Google Scholar]
  21. Bianconi M, Esposito F, Sammon M. 2021. Trade policy uncertainty and stock returns. J. Int. Money Finance 119:102492
    [Google Scholar]
  22. Blaum J, Lelarge C, Peters M. 2018. The gains from input trade with heterogeneous importers. Am. Econ. J. Macroecon. 10:477–127
    [Google Scholar]
  23. Bloom N, Bunn P, Chen S, Mizen P, Smietanka P, Thwaites G. 2019. The impact of Brexit on UK firms NBER Work. Pap. 26218
    [Google Scholar]
  24. Borchert I, Di Ubaldo M. 2020. Go ahead and trade: the effect of uncertainty removal in the EU's GSP scheme Work. Pap. Univ. Sussex Bus. Sch. Falmer, UK:
    [Google Scholar]
  25. Born B, Müller GJ, Schularick M, Sedláček P. 2019. The costs of economic nationalism: evidence from the Brexit experiment. Econ. J. 129:6232722–44
    [Google Scholar]
  26. Bown CP, Crowley MA. 2013. Import protection, business cycles, and exchange rates: evidence from the Great Recession. J. Int. Econ. 90:150–64
    [Google Scholar]
  27. Broda C, Limão N, Weinstein DE. 2008. Optimal tariffs and market power: the evidence. Am. Econ. Rev. 98:52032–65
    [Google Scholar]
  28. Cadot O, Olarreaga M, Tschopp J. 2009. Do trade agreements reduce the volatility of agricultural distortions? Agric. Distortions Work. Pap. Ser. 50303 World Bank Washington, DC:
    [Google Scholar]
  29. Caldara D, Iacoviello M, Molligo P, Prestipino A, Raffo A. 2020. The economic effects of trade policy uncertainty. J. Monet. Econ. 109:38–59
    [Google Scholar]
  30. Caliendo L, Dvorkin M, Parro F. 2019. Trade and labor market dynamics: general equilibrium analysis of the China trade shock. Econometrica 87:3741–835
    [Google Scholar]
  31. Caliendo L, Feenstra RC, Romalis J, Taylor AM. 2015. Tariff reductions, entry, and welfare: theory and evidence for the last two decades NBER Work. Pap. 21768
    [Google Scholar]
  32. Caliendo L, Parro F. 2021. Trade policy NBER Work. Pap. 29051
    [Google Scholar]
  33. Carballo J. 2015. Global sourcing under uncertainty PhD Thesis Univ. Md. College Park:
    [Google Scholar]
  34. Carballo J, Handley K, Limão N. 2018. Economic and policy uncertainty: export dynamics and the value of agreements NBER Work. Pap. 24368
    [Google Scholar]
  35. Charoenwong B, Han M, Wu J. 2020. Not coming home: trade and economic policy uncertainty in American supply chain networks Work. Pap. Natl. Univ. Singap. Singapore:
    [Google Scholar]
  36. Constantinescu C, Mattoo A, Ruta M. 2020. Policy uncertainty, trade and global value chains: some facts, many questions. Rev. Ind. Organ. 57:2285–308
    [Google Scholar]
  37. Cooper R, Riezman R. 1989. Uncertainty and the choice of trade policy in oligopolistic industries. Rev. Econ. Stud. 56:1129–40
    [Google Scholar]
  38. Crowley MA, Exton O, Han L. 2020. The looming threat of tariff hikes: entry into exporting under trade agreement renegotiation. AEA Pap. Proc. 110:547–51
    [Google Scholar]
  39. Crowley MA, Meng N, Song H. 2018. Tariff scares: trade policy uncertainty and foreign market entry by Chinese firms. J. Int. Econ. 114:96–115
    [Google Scholar]
  40. Deason LM. 2014. Modeling international trade under the threat of tariff hikes in general equilibrium PhD Thesis Univ. Md. College Park:
    [Google Scholar]
  41. Dixit A. 1989. Entry and exit decisions under uncertainty. J. Political Econ. 97:3620–38
    [Google Scholar]
  42. Dixit RK, Pindyck RS. 1994. Investment Under Uncertainty Princeton, NJ: Princeton Univ. Press
    [Google Scholar]
  43. Douch M, Du J, Vanino E. 2019. Defying gravity? Policy uncertainty and trade diversion Work. Pap. Aston Univ. Birmingham, UK:
    [Google Scholar]
  44. Eaton J, Grossman GM. 1985. Tariffs as insurance: optimal commercial policy when domestic markets are incomplete. Can. J. Econ. 18:2258–72
    [Google Scholar]
  45. Esposito F. 2020. Demand risk and diversification through international trade MPRA Pap. 100865 Univ. Libr. Munich Munich, Ger:.
    [Google Scholar]
  46. Eur. Comm 2013. Revised EU trade scheme to help developing countries applies on 1 January 2014 Memo, Eur. Comm. Brussels, Belg:.
    [Google Scholar]
  47. Facchini G, Liu MY, Mayda AM, Zhou M. 2019. China's great migration: the impact of the reduction in trade policy uncertainty. J. Int. Econ. 120:126–44
    [Google Scholar]
  48. Feenstra RC, Sasahara A. 2018. The “China shock,” exports and U.S. employment: a global input/output analysis. Rev. Int. Econ. 26:51053–83
    [Google Scholar]
  49. Feng L, Li Z, Swenson DL. 2017. Trade policy uncertainty and exports: evidence from China's WTO accession. J. Int. Econ. 106:20–36
    [Google Scholar]
  50. Fernandes AP, Winters LA. 2021. Exporters and shocks: the impact of the Brexit vote shock on bilateral exports to the UK. J. Int. Econ. 131:103489
    [Google Scholar]
  51. Fillat JL, Garetto S. 2015. Risk, returns, and multinational production. Q. J. Econ. 130:42027–73
    [Google Scholar]
  52. Fishelson G, Flatters F. 1975. The (non)equivalence of optimal tariffs and quotas under uncertainty. J. Int. Econ. 5:4385–93
    [Google Scholar]
  53. Francois JF, Martin W. 2004. Commercial policy variability, bindings, and market access. Eur. Econ. Rev. 48:3665–79
    [Google Scholar]
  54. Gervais A. 2018. Uncertainty, risk aversion and international trade. J. Int. Econ. 115:145–58
    [Google Scholar]
  55. Gervais A. 2021. Global sourcing under uncertainty. Can. J. Econ. 54:31103–35
    [Google Scholar]
  56. Gnutzmann-Mkrtchyan A, Henn C. 2018. Peeling away the layers: impacts of durable tariff elimination. J. Int. Econ. 115:259–76
    [Google Scholar]
  57. Goldberg PK, Pavcnik N. 2016. The effects of trade policy NBER Work. Pap. 21957
    [Google Scholar]
  58. Graziano AG, Handley K, Limão N. 2020. Brexit uncertainty: trade externalities beyond Europe. AEA Pap. Proc. 110:552–56
    [Google Scholar]
  59. Graziano AG, Handley K, Limão N. 2021. Brexit uncertainty and trade disintegration. Econ. J. 131:6351150–85
    [Google Scholar]
  60. Graziano AG, Handley K, Limão N. 2022. An import(ant) price of Brexit. Work. Pap. Univ. Nottingham Nottingham, UK:
    [Google Scholar]
  61. Greenland A, Ion M, Lopresti J. 2019a. Exports, investment and policy uncertainty. Can. J. Econ. Rev. Can. Econ. 52:31248–88
    [Google Scholar]
  62. Greenland A, Lopresti J, McHenry P. 2019b. Import competition and internal migration. Rev. Econ. Stat. 101:144–59
    [Google Scholar]
  63. Groppo V, Piermartini R. 2014. Trade policy uncertainty and the WTO WTO Staff Work. Pap. ERSD-2014-23 Econ. Res. Stat. Div., World Trade Organ. Geneva, Switz:.
    [Google Scholar]
  64. Grossman GM 2016. The purpose of trade agreements. Handbook of Commercial Policy, Vol. 1A K Bagwell, RW Staiger 379–434 Amsterdam: North-Holland
    [Google Scholar]
  65. Hakobyan S. 2015. Accounting for underutilization of trade preference programs: the US generalized system of preferences. Can. J. Econ. Rev. Can. Econ. 48:2408–36
    [Google Scholar]
  66. Halpern L, Koren M, Szeidl A. 2015. Imported inputs and productivity. Am. Econ. Rev. 105:123660–703
    [Google Scholar]
  67. Handley K. 2014. Exporting under trade policy uncertainty: theory and evidence. J. Int. Econ. 94:150–66
    [Google Scholar]
  68. Handley K, Li JF. 2020. Measuring the effects of firm uncertainty on economic activity: new evidence from one million documents NBER Work. Pap. 27896
    [Google Scholar]
  69. Handley K, Limão N. 2015. Trade and investment under policy uncertainty: theory and firm evidence. Am. Econ. J. Econ. Policy 7:4189–222
    [Google Scholar]
  70. Handley K, Limão N. 2017. Policy uncertainty, trade, and welfare: theory and evidence for China and the United States. Am. Econ. Rev. 107:92731–83
    [Google Scholar]
  71. Handley K, Limão N, Ludema RD, Yu Z. 2020. Firm input choice under trade policy uncertainty NBER Work. Pap. 27910
    [Google Scholar]
  72. Hassan TA, Hollander S, van Lent L, Tahoun A. 2019. Firm-level political risk: measurement and effects. Q. J. Econ. 134:42135–202
    [Google Scholar]
  73. Hassan TA, Hollander S, van Lent L, Tahoun A. 2020. The global impact of Brexit uncertainty NBER Work. Pap. 26609
    [Google Scholar]
  74. Heise S, Pierce J, Schaur G, Schott P. 2019. Tariff rate uncertainty and the structure of supply chains Work. Pap. Fed. Reserve Bank New York New York:
    [Google Scholar]
  75. Hlatshwayo S. 2016. Unpacking policy uncertainty: evidence from European firms Work. Pap. Int. Monet. Fund Washington, DC:
    [Google Scholar]
  76. Horn H, Maggi G, Staiger RW 2010. Trade agreements as endogenously incomplete contracts. Am. Econ. Rev. 100:1394–419
    [Google Scholar]
  77. Imbruno M. 2019. Importing under trade policy uncertainty: evidence from China. J. Comp. Econ. 47:4806–26
    [Google Scholar]
  78. Jaravel X, Sager E. 2019. What are the price effects of trade? Evidence from the US and implications for quantitative trade models FEDS Work. Pap. 2019-68 Board Gov. Fed. Reserve System Washington, DC:
    [Google Scholar]
  79. Javorcik B, Kett B, O'Kane L, Stapleton K. 2019. Unravelling trade integration: local labour market effects of the Brexit vote CEPR Discuss. Pap. 14222 Cent. Econ. Policy Res. London:
    [Google Scholar]
  80. Kee HL, Nicita A, Olarreaga M. 2009. Estimating trade restrictiveness indices. Econ. J. 119:534172–99
    [Google Scholar]
  81. Khanna G, Shih K, Weinberger A, Xu M, Yu M 2020. Trade liberalization and Chinese students in US higher education Work. Pap. 536 Cent. Global Dev. Washington, DC:
    [Google Scholar]
  82. Kohler W, Kukharskyy B. 2019. Offshoring under uncertainty. Eur. Econ. Rev. 118:158–80
    [Google Scholar]
  83. Kost K. 2020. Trade policy uncertainty, investment, and lobbying PhD Thesis Univ. Chicago Chicago:
    [Google Scholar]
  84. Li L. 2020. Trade policy shocks and consumer prices Work. Pap. Univ. Md. College Park:
    [Google Scholar]
  85. Limão N 2016. Preferential trade agreements. Handbook of Commercial Policy, Vol. 1B K Bagwell, RW Staiger 279–367 Amsterdam: North-Holland
    [Google Scholar]
  86. Limão N, Maggi G 2015. Uncertainty and trade agreements. Am. Econ. J. Microecon. 7:41–42
    [Google Scholar]
  87. Liu Q, Ma H. 2020. Trade policy uncertainty and innovation: firm level evidence from China's WTO accession. J. Int. Econ. 127:103387
    [Google Scholar]
  88. Maggi G 2014. International trade agreements. Handbook of International Economics, Vol. 4 G Gopinath, E Helpman, K Rogoff 317–90 Amsterdam: Elsevier
    [Google Scholar]
  89. Maggi G, Rodríguez-Clare A. 2007. A political-economy theory of trade agreements. Am. Econ. Rev. 97:41374–406
    [Google Scholar]
  90. McLaren J 2016. The political economy of commercial policy. Handbook of Commercial Policy, Vol. 1A K Bagwell, R Staiger 109–59 Amsterdam: North-Holland
    [Google Scholar]
  91. Melitz M, Redding SJ. 2015. New trade models, new welfare implications. Am. Econ. Rev. 105:31105–46
    [Google Scholar]
  92. Meng KC. 2017. Using a free permit rule to forecast the marginal abatement cost of proposed climate policy. Am. Econ. Rev. 107:3748–84
    [Google Scholar]
  93. Newbery DMG, Stiglitz JE. 1984. Pareto inferior trade. Rev. Econ. Stud. 51:11–12
    [Google Scholar]
  94. Nicita A, Olarreaga M, Silva P. 2018. Cooperation in WTO's tariff waters?. J. Political Econ. 126:31302–38
    [Google Scholar]
  95. Osnago A, Piermartini R, Rocha N. 2015. Trade policy uncertainty as barrier to trade WTO Staff Work. Pap. World Trade Organ. Geneva, Switz:.
    [Google Scholar]
  96. Osnago A, Piermartini R, Rocha N. 2018. The heterogeneous effects of trade policy uncertainty: How much do trade commitments boost trade? Policy Res. Work. Pap. Ser. 8567 World Bank Washington, DC:
    [Google Scholar]
  97. Ossa R. 2014. Trade wars and trade talks with data. Am. Econ. Rev. 104:124104–46
    [Google Scholar]
  98. Pierce JR, Schott PK. 2016. The surprisingly swift decline of US manufacturing employment. Am. Econ. Rev. 106:71632–62
    [Google Scholar]
  99. Pierce JR, Schott PK. 2018. Investment responses to trade liberalization: evidence from US industries and establishments. J. Int. Econ. 115:203–22
    [Google Scholar]
  100. Pierce JR, Schott PK. 2020. Trade liberalization and mortality: evidence from US counties. Am. Econ. Rev. Insights 2:147–64
    [Google Scholar]
  101. Rodrik D. 1995. Political economy of trade policy. In Handbook of International EconomicsVol. 3:ed. GM Grossman, K Rogoff, pp. 145794 Amsterdam: Elsevier
    [Google Scholar]
  102. Ruhl KJ. 2008. The international elasticity puzzle Work. Pap. 08-30 New York Univ. New York:
    [Google Scholar]
  103. Sala D, Schröder PJ, Yalcin E 2010. Market access through bound tariffs. Scott. J. Political Econ. 57:3272–89
    [Google Scholar]
  104. Shepotylo O, Stuckatz J. 2021. Political uncertainty, FDI, and trade in intermediate goods: evidence from Ukrainian firms Work. Pap. Aston Univ. Birmingham, UK:
    [Google Scholar]
  105. Staiger RW, Tabellini G. 1987. Discretionary trade policy and excessive protection. Am. Econ. Rev. 77:5823–37
    [Google Scholar]
  106. Steinberg JB. 2019. Brexit and the macroeconomic impact of trade policy uncertainty. J. Int. Econ. 117:175–95
    [Google Scholar]
  107. Sudsawasd S, Moore RE. 2006. Investment under trade policy uncertainty: an empirical investigation. Rev. Int. Econ. 14:2316–29
    [Google Scholar]
  108. Tang MK, Wei SJ. 2009. The value of making commitments externally: evidence from WTO accessions. J. Int. Econ. 78:2216–29
    [Google Scholar]
  109. Topalova P, Khandelwal A. 2011. Trade liberalization and firm productivity: the case of India. Rev. Econ. Stat. 93:3995–1009
    [Google Scholar]
  110. US Int. Trade Comm 2008. Andean Trade Preference Act: impact on U.S. industries and consumers and on drug crop eradication and crop substitution Publ. 4037 US Int. Trade Comm. Washington, DC:
    [Google Scholar]
  111. Young L, Anderson JE. 1980. The optimal policies for restricting trade under uncertainty. Rev. Econ. Stud. 47:5927–32
    [Google Scholar]
/content/journals/10.1146/annurev-economics-021622-020416
Loading
/content/journals/10.1146/annurev-economics-021622-020416
Loading

Data & Media loading...

  • Article Type: Review Article
This is a required field
Please enter a valid email address
Approval was a Success
Invalid data
An Error Occurred
Approval was partially successful, following selected items could not be processed due to error