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

Abstract

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.