Corporate investment amid trade policy uncertainty: Past lessons, future presidency

Vaibhav Keshav

The North American Journal of Economics and Finance, 2025, vol. 80, issue C

Abstract: What insights can we glean from the prior trade conflict between the US and China amidst its prominence in the 2025–2028 presidential term? Between 2016 and 2019, the US–China trade dispute, with US tariffs and Chinese retaliation, surged trade policy uncertainty (TPU). Departing from prior studies focusing on overall economic policy uncertainty (EPU), this study reports an inverse causal relation between aggregate and firm-level TPU and corporate investment by employing a novel instrumental variable. Apart from confirming the real options channel, I identify a foreign exchange channel, highlighting the susceptibility of firms to TPU based on exposure to exchange rate fluctuations. Lastly, I discuss the implications of this study in the context of the upcoming US presidential elections and beyond.

Keywords: Corporate investment; Trade policy; Uncertainty; Instrumental variable; Real options; Trump (search for similar items in EconPapers)
JEL-codes: D80 E22 E66 G18 G31 G38 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:80:y:2025:i:c:s1062940825001548

DOI: 10.1016/j.najef.2025.102514

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