IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/25965.html
   My bibliography  Save this paper

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

Author

Listed:
  • George A. Alessandria
  • Shafaat Y. Khan
  • Armen Khederlarian

Abstract

We study the effects on trade from the annual tariff uncertainty about China’s MFN status renewal prior to joining the WTO. We have three main findings. First, counter to the evidence elsewhere, trade increases strongly in anticipation of uncertain future increases in tariffs. Second, even though the trade response can be quite large, the probability of a tariff increase was perceived to be relatively small, with an average annual probability of non-renewal of about 5.5 percent. And 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. The model is also consistent with a sizeable fraction of the cross-industry variation in annual trade flows documented elsewhere. Our results explain why trade may hold up well in advance of a prospective policy change such as Brexit or the US escalating tariff war of 2018-19, but may fall off sharply even if expected tariff increases do not materialize.

Suggested Citation

  • George A. Alessandria & Shafaat Y. Khan & Armen Khederlarian, 2019. "Taking Stock of Trade Policy Uncertainty: Evidence from China’s Pre-WTO Accession," NBER Working Papers 25965, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:25965
    Note: EFG IFM ITI
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w25965.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Kropf, Andreas & Sauré, Philip, 2014. "Fixed costs per shipment," Journal of International Economics, Elsevier, vol. 92(1), pages 166-184.
    2. Caldara, Dario & Iacoviello, Matteo & Molligo, Patrick & Prestipino, Andrea & Raffo, Andrea, 2020. "The economic effects of trade policy uncertainty," Journal of Monetary Economics, Elsevier, vol. 109(C), pages 38-59.
    3. Steinberg, Joseph B., 2019. "Brexit and the macroeconomic impact of trade policy uncertainty," Journal of International Economics, Elsevier, vol. 117(C), pages 175-195.
    4. Crowley, Meredith & Meng, Ning & Song, Huasheng, 2018. "Tariff scares: Trade policy uncertainty and foreign market entry by Chinese firms," Journal of International Economics, Elsevier, vol. 114(C), pages 96-115.
    5. Charnavoki, Valery, 2019. "Retail sales of durable goods, inventories and imports after large devaluations," Journal of Economic Dynamics and Control, Elsevier, vol. 108(C).
    6. Ryan Kellogg, 2014. "The Effect of Uncertainty on Investment: Evidence from Texas Oil Drilling," American Economic Review, American Economic Association, vol. 104(6), pages 1698-1734, June.
    7. Feng, Ling & Li, Zhiyuan & Swenson, Deborah L., 2017. "Trade policy uncertainty and exports: Evidence from China's WTO accession," Journal of International Economics, Elsevier, vol. 106(C), pages 20-36.
    8. Dixit, Avinash K, 1989. "Entry and Exit Decisions under Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 620-638, June.
    9. Justin R. Pierce & Peter K. Schott, 2016. "The Surprisingly Swift Decline of US Manufacturing Employment," American Economic Review, American Economic Association, vol. 106(7), pages 1632-1662, July.
    10. Virgiliu Midrigan & Joseph Kaboski & George Alessandria, 2010. "The Great Trade Collapse of 2008-09: An Inventory Adjustment?," 2010 Meeting Papers 107, Society for Economic Dynamics.
    11. Alejandro Graziano & Kyle Handley & Nuno Limão, 2018. "Brexit Uncertainty and Trade Disintegration," NBER Working Papers 25334, National Bureau of Economic Research, Inc.
    12. Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, vol. 87(4), pages 545-564, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Federico Esposito, 2019. "Demand Risk and Diversification through Trade," Discussion Papers Series, Department of Economics, Tufts University 0833, Department of Economics, Tufts University.
    2. Esposito, Federico, 2020. "Demand Risk and Diversification through International Trade," MPRA Paper 100865, University Library of Munich, Germany.
    3. Federico Esposito & Marcelo Bianconi & Marco Sammon, 2020. "Trade Policy Uncertainty and Stock Returns," Discussion Papers Series, Department of Economics, Tufts University 0834, Department of Economics, Tufts University.
    4. Paul Ilhak Ko, 2020. "Dissecting Trade and Business Cycle Co-movement," 2020 Papers pko1026, Job Market Papers.
    5. Marcelo Bianconi & Federico Esposito & Marco Sammon, 2019. "Trade Policy Uncertainty and Stock Returns," Discussion Papers Series, Department of Economics, Tufts University 0830, Department of Economics, Tufts University.
    6. Beshkar, Mostafa & Shourideh, Ali, 2020. "Optimal trade policy with trade imbalances," Journal of Monetary Economics, Elsevier, vol. 109(C), pages 65-82.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Marcelo Bianconi & Federico Esposito & Marco Sammon, 2019. "Trade Policy Uncertainty and Stock Returns," Discussion Papers Series, Department of Economics, Tufts University 0830, Department of Economics, Tufts University.
    2. Federico Esposito & Marcelo Bianconi & Marco Sammon, 2020. "Trade Policy Uncertainty and Stock Returns," Discussion Papers Series, Department of Economics, Tufts University 0834, Department of Economics, Tufts University.
    3. Mary Amiti & Sang Hoon Kong & David Weinstein, 2020. "The Effect of the U.S.-China Trade War on U.S. Investment," NBER Working Papers 27114, National Bureau of Economic Research, Inc.
    4. Gnangnon, Sena Kimm, 2020. "Tariff Volatility and Tariff Policy in Developed and Developing Countries," EconStor Preprints 223302, ZBW - Leibniz Information Centre for Economics.
    5. George Alessandria & Horag Choi & Dan Lu, 2017. "Trade Integration and the Trade Balance in China," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 65(3), pages 633-674, August.
    6. Crowley, M. A. & Exton, O. & Han, L., 2018. "Renegotiation of Trade Agreements and Firm Exporting Decisions: Evidence from the Impact of Brexit on UK Exports," Cambridge Working Papers in Economics 1839, Faculty of Economics, University of Cambridge.
    7. Bloom, Nicholas & Bunn, Philip & Chen, Scarlet & Mizen, Paul & Smietanka, Pawel & Thwaites, Gregory, 2019. "The impact of Brexit on UK firms," Bank of England working papers 818, Bank of England.
    8. Arigoni, Filippo & Lenarčič, Črt, 2020. "The impact of trade policy uncertainty shocks on the Euro Area," MPRA Paper 100832, University Library of Munich, Germany.
    9. Dennis Novy & Alan M. Taylor, 2020. "Trade and Uncertainty," The Review of Economics and Statistics, MIT Press, vol. 102(4), pages 749-765, October.
    10. Imbruno, Michele, 2019. "Importing under trade policy uncertainty: Evidence from China," Journal of Comparative Economics, Elsevier, vol. 47(4), pages 806-826.
    11. Li, Xiaogang, 2020. "Innovation, market valuations, policy uncertainty and trade: Theory and evidence," ISU General Staff Papers 202001010800009179, Iowa State University, Department of Economics.
    12. Campbell, Douglas L., 2020. "Relative Prices and Hysteresis: Evidence from US Manufacturing," European Economic Review, Elsevier, vol. 129(C).
    13. Robert C. Feenstra & Akira Sasahara, 2018. "The ‘China shock,’ exports and U.S. employment: A global input–output analysis," Review of International Economics, Wiley Blackwell, vol. 26(5), pages 1053-1083, November.
    14. Bai, Xue & Krishna, Kala & Ma, Hong, 2017. "How you export matters: Export mode, learning and productivity in China," Journal of International Economics, Elsevier, vol. 104(C), pages 122-137.
    15. Schmitz, Emerson, 2019. "Essays on banking and international trade," Other publications TiSEM 74748bf6-7c16-4e08-a6a6-e, Tilburg University, School of Economics and Management.
    16. Emerson Erik Schmitz, 2019. "The impact of Brexit uncertainties on international trade : Evidence from Belgium," Working Paper Research 380, National Bank of Belgium.
    17. Nikolaos A. Kyriazis, 2021. "Trade Policy Uncertainty Effects on Macro Economy and Financial Markets: An Integrated Survey and Empirical Investigation," Journal of Risk and Financial Management, MDPI, Open Access Journal, vol. 14(1), pages 1-20, January.
    18. Yohannes Ayele & L. Alan Winters, 2020. "How Do Exchange Rate Depreciations Affect Trade and Prices? A Survey and Lessons about UK Experience after June 2016," Working Paper Series 1420, Department of Economics, University of Sussex Business School.
    19. Mau, Karsten, 2017. "US policy spillover(?) – China’s accession to the WTO and rising exports to the EU," European Economic Review, Elsevier, vol. 98(C), pages 169-188.
    20. Tarek Alexander Hassan & Stephan Hollander & Laurence van Lent & Ahmed Tahoun, 2020. "The Global Impact of Brexit Uncertainty," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-332, Boston University - Department of Economics.

    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:25965. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.