Does trade policy uncertainty in China and USA matter for key financial markets?

Adeel Riaz (), Assad Ullah and Li Xingong ()
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Adeel Riaz: Hanjiang Normal University
Li Xingong: Henan University

Economic Change and Restructuring, 2024, vol. 57, issue 2, No 3, 30 pages

Abstract: Abstract The escalation of tit for tat tariffs between China and the USA has resulted in an unprecedented hike in the trade policy uncertainty (TPU). Such an increase in the volatility of the policy environment could be consequential for the whole economic structure, including financial markets. In this backdrop, we investigate the influence of TPU of these giant economies for the key financial markets, i.e., commodity (energy and non-energy), credit, and stock market by employing TVP-VAR connectedness approach for the period starting from Jan-2000 to Feb-2021. The results of the time-varying spillovers suggest that the contagion effects of the TPU are minuscule for the financial markets with the exception of certain periods, whereas the stock market played a dominant role followed closely by the commodity (non-energy) market. The spillovers were considerably heightened during the financial crisis of 2008 and COVID-19. Moreover, the financial crisis of 2008 acted as a trigger for the contagion across financial markets and the effects lasted for many years to come. Pairwise and net spillovers further show the dominance of contagion effects of the stock market while oil market remained on the receiving end.

Keywords: Trade policy uncertainty; Financial markets; Dynamic spillovers; Chinese TPU; US TPU; TVP-VAR (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10644-024-09613-0

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