The effects of trade policy uncertainty

Kyle Handley and Nuno Limão

Chapter 37 in Elgar Encyclopedia of International Trade, 2026, pp 188-192 from Edward Elgar Publishing

Abstract: From the end of World War II to 2008, global trade expanded rapidly, supported by multilateral and regional trade agreements that reduced trade policy uncertainty (TPU). Since 2008, TPU has increased sharply due to the financial and trade crisis, followed by Brexit and US–China trade tensions. We describe the effects of TPU on exports, prices, and welfare, and how those effects differ depending on whether uncertainty stems from trade agreements, disputes, or broader shocks. We focus on a model where TPU affects firm decisions to make sunk cost investments—such as entering export markets or sourcing inputs. This framework has offered useful theoretical insights and empirical tools for estimating the impacts of TPU and understanding how uncertainty affects trade patterns, firm behavior, and economic outcomes.

Keywords: Trade Policy Uncertainty; Trade pattern; Investment; Firm behavior; Welfare (search for similar items in EconPapers)
Date: 2026
ISBN: 9781035327492
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