Regional Trade Policy Uncertainty

Poilly, Céline and Fabien Tripier

No 19906, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Higher trade policy uncertainty has recessionary effects on U.S. states. To demonstrate this, we first build a novel empirical measure of regional trade policy uncertainty based on the volatility of national import tariffs at the sectoral level and on the sectoral composition of imports in U.S. states. We find that a state that is more exposed to an unanticipated increase in tariff volatility suffers from a larger drop in real GDP and employment than the average U.S. state. We then build a two-region open-economy model and find that the precautionary saving behavior is the main driver of the recession, although this effect is reinforced by high exposure to import tariffs. The feedback effect resulting from trade connections with the Foreign country primarily influences the persistence of these dynamics.

Keywords: Tariffs (search for similar items in EconPapers)
JEL-codes: E32 E52 F41 (search for similar items in EconPapers)
Date: 2025-02
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