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Whose policy uncertainty matters in the trade between China and the U.S.?

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  • Mohsen Bahmani-Oskooee

    (The University of Wisconsin-Milwaukee)

  • Jia Xu

    (Shanghai International Studies University)

Abstract

A few studies that have assessed the impact of economic policy uncertainty on trade flows, have used aggregate trade flows in a panel model. In this paper, we reduce aggregation bias by considering the response of each of the 87 industries in the trade between the U.S. and China to economic policy uncertainty in both countries. While we find significant short-run effects of both uncertainty measures in almost 55% of the U.S. exporting to and importing industries from China, short-run effects lasted into significant long-run effects in a limited number of large and small industries. More precisely, we found U.S. policy uncertainty to have negative long-run effects in 36 exporting industries with an export share of 43% and 25 importing industries with an import share of 11%. By contrast, we found China’s economic policy uncertainty to have positive long-run effects on the U.S. exports of 19 industries with an export share of 18% and on the U.S. imports of 24 industries with an import share of 13.5%. Clearly, increased tension between these two countries that contribute to increased uncertainty will hurt the trade balance of both countries.

Suggested Citation

  • Mohsen Bahmani-Oskooee & Jia Xu, 2022. "Whose policy uncertainty matters in the trade between China and the U.S.?," Economic Change and Restructuring, Springer, vol. 55(3), pages 1497-1542, August.
  • Handle: RePEc:kap:ecopln:v:55:y:2022:i:3:d:10.1007_s10644-021-09356-2
    DOI: 10.1007/s10644-021-09356-2
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    References listed on IDEAS

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    Cited by:

    1. Bahmani-Oskooee, Mohsen & Harvey, Hanafiah, 2023. "Whose policy uncertainty matters in the trade between Mexico and the U.S.: Additional evidence from asymmetric analysis," The Journal of Economic Asymmetries, Elsevier, vol. 28(C).
    2. Mohsen Bahmani‐Oskooee & Ridha Nouira & Sami Saafi, 2023. "Whose policy uncertainty affects commodity trade between Australia and the United States?," Australian Economic Papers, Wiley Blackwell, vol. 62(1), pages 101-123, March.
    3. Mohsen Bahmani‐Oskooee & Ridha Nouira & Sami Saafi, 2023. "Whose policy uncertainty affects trade flows between Japan and the U.S.?," Australian Economic Papers, Wiley Blackwell, vol. 62(3), pages 457-485, September.

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