Trade Policy Ambiguity

Joseph Steinberg

No 34408, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper studies how Knightian uncertainty about the distribution of future trade policies affects current trade flows using a dynamic trade model with a sunk cost of exporting. Qualitatively, trade-policy ambiguity reduces export participation in a similar manner to standard trade-policy risk, but also increases sensitivity to tariff bounds, decreases sensitivity to the likelihood of a tariff increase, and can either increase or decrease sensitivity to tariff persistence. Quantitatively, ambiguity dampens the response of trade to persistent reforms and strengthens the response to transitory reforms.

JEL-codes: F12 F13 F17 (search for similar items in EconPapers)
Date: 2025-10
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