Tariff uncertainty and the cost of debt: Evidence from United States–China permanent normal trade relations

Huasheng Gao and Yuxi Wang

Journal of Banking & Finance, 2025, vol. 178, issue C

Abstract: We examine the causal effect of tariff uncertainty on firms’ cost of debt. Our tests exploit a unique trade policy that reduces tariff uncertainty on Chinese imports without affecting the actual tariff rate, United States (U.S.)–China permanent normal trade relations (PNTR). We reveal a significant drop in the loan spreads for firms affected by PNTR relative to other firms. We further demonstrate that such effects occur through the channel of increasing firms’ performance predictability. Overall, by examining a clean measure of uncertainty from the tariff source, we provide evidence that reducing uncertainty has a causal effect on reducing the cost of debt.

Keywords: tariff uncertainty; Cost of debt; Bank loans; Performance predictability; Permanent normal trade relation (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:178:y:2025:i:c:s0378426625001359

DOI: 10.1016/j.jbankfin.2025.107515

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