Can Trade Policy Uncertainty Drive Green Innovation? Empirical Evidence From the US–China Trade War

Abstract

China's rapid economic growth in recent years has coincided with heightened environmental regulations and an upsurge in greenhouse gas emissions, necessitating a greater emphasis on green innovation to mitigate environmental risks. Concurrently, the US–China trade war has elevated trade policy uncertainty (TPU). This study uses the TPU surge from the trade war as a quasi-natural experiment, employing text analysis of annual reports to assess firms' TPU perceptions. Using a difference-in-differences method, we find that increased TPU significantly hinders green innovation. Firms' responses vary with environmental advantages, regulation levels, and government subsidies. Mechanisms include reduced environmental investment, decreased executive attention to environmental issues,  and corporate social responsibility. These findings underscore the importance of a stable trading environment for promoting green innovation.