Does trade policy related uncertainty affect international trade? Evidence from the US-China commodity trade

Abstract

ABSTRACT This study examines the impacts of US and China trade policy uncertainties on the US’s commodity level bilateral trade balances (henceforth, BTBs) with China. To this end, newly created trade policy uncertainty (henceforth, TPU) indexes for both countries are used and the nonlinear ARDL model is applied. Empirical findings indicate that the impacts of US and China TPU indexes on US’s aggregated and disaggregated data BTBs are mostly different. The aggregated data model finds that increases in the US TPU index worsen US’s BTB. However, disaggregated models find ‘improvements’ in 4 and ‘no impacts’ in 3 commodities out of 10. Similarly, while the aggregated data model finds that increases in China’s TPU index improves US’s BTB, disaggregated models find ‘worsen’ in 4 and ‘no impacts’ in 5 commodities our of 10. Furthermore, increases in the US’s TPU index worsen US BTB the most in commodity beverages and tobacco.