Economic Policy Uncertainty, Geopolitical Risk, and the U.S.–China Relations: A Risk Transmission Perspective

Jacky Yuk-Chow So and Un Loi Lao ()
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Jacky Yuk-Chow So: School of Business, Macau University of Science and Technology, Macau
Un Loi Lao: School of Business, Macau University of Science and Technology, Macau

JRFM, 2025, vol. 18, issue 11, 1-23

Abstract: This study examines risk transmission between the United States and China using integrated economic policy uncertainty (EPU) and geopolitical risk (GPR) indices. We employ a dual methodology that combines Vector Autoregressive (VAR) and Granger causality in quantiles tests to analyze interactions during systemic leadership transitions, a dimension that is currently under-explored. Our dataset covers the period from June 2000 to June 2023. Results indicate that China is narrowing the economic influence gap and strengthening its role as a regional anchor. The U.S., however, maintains predominant global leadership. This dynamic reframes bilateral tensions as a “status dilemma” rather than a security conflict. Crucially, we identify asymmetric spillover effects: the U.S. uncertainty shocks spread globally, while China’s volatility remains regional. Our findings contribute to the understanding of financial stability by demonstrating that leadership asymmetries are critical determinants, providing valuable insights for designing systemic risk monitoring tools and contagion mitigation policies during periods of heightened uncertainty.

Keywords: risk transmission; economic policy uncertainty; geopolitical risk; U.S.–China relations; financial stability (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2025
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