Taking Stock of Trade Policy Uncertainty: Evidence from China’s Pre-WTO Accession

George Alessandria, Shafaat Khan and Armen Khederlarian

No 25965, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study the effects on international trade from the annual tariff uncertainty about China's MFN status renewal in the U.S. prior to joining the WTO. We have four main findings. First, in the monthly data trade increases significantly in anticipation of uncertain future increases in tariffs and falls upon renewal. Second, the probability of a tariff increase was perceived to be relatively small, with an average annual probability of non-renewal of about 3.2 percent. Third, what matters more is the expected future tariff rather than the uncertainty around it. We identify these effects using within-year variation in the risk of trade policy changes around the renewal vote and trade flows. We show that an (s; s) inventory model generates this behavior and that variation in the strength of the stockpiling in advance of the vote is increasing in the storability of goods. Fourth, the costs associated with the trade policy induced stockpiling reduce entrants' incentive to operate in a market with tariff uncertainty. Our results explain why trade may hold up in advance of a prospective policy change, such as Brexit or the U.S.-China escalating tariff war of 2018-19, but may fall sharply even if expected tariff increases do not materialize.

JEL-codes: E32 E60 F12 F13 F14 (search for similar items in EconPapers)
Date: 2019-06
New Economics Papers: this item is included in nep-cna, nep-int and nep-mac
Note: EFG IFM ITI
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Citations: View citations in EconPapers (17)

Published as George Alessandria & Shafaat Yar Khan & Armen Khederlarian, 2024. "Taking stock of trade policy uncertainty: Evidence from China’s pre-WTO accession," Journal of International Economics, .

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Journal Article: Taking stock of trade policy uncertainty: Evidence from China’s pre-WTO accession (2024)
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