Taking Stock of Trade Policy Uncertainty: Evidence from China's Pre-WTO Accession / George A. Alessandria, Shafaat Y. Khan, Armen Khederlarian.

Format:

Book

Author/Creator:

Alessandria, George A.

Contributor:

National Bureau of Economic Research.

Khan, Shafaat Y.

Khederlarian, Armen.

Series:

Working Paper Series (National Bureau of Economic Research) no. w25965.

NBER working paper series no. w25965

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Taking Stock of Trade Policy Uncertainty

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2019.

Summary:

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.

Notes:

Print version record

June 2019.