US Trade Policy Uncertainty and the Connectedness of Global Supply Bottlenecks

This study examines the impact of trade policy uncertainty of the United States (US) on the transmission and amplification of supply bottleneck shocks across major global economies. Utilising daily data spanning from January 15, 2010, to March 15, 2025, we employ a time-varying parameter vector autoregressive (TVP-VAR) framework to analyse the dynamic interconnections of supply bottlenecks at the country level. Furthermore, we evaluate the directional predictability of systemic spillover risk originating from US trade policy uncertainty through the application of the cross-quantilogram methodology. The connectedness results show that supply bottleneck spillovers are strongly time-varying and rise sharply during major global disruptions, particularly the COVID-19 pandemic, the US-China trade war, and the Russia-Ukraine war. Directional spillovers indicate that the US and China are the main net transmitters of shocks, while European economies and the United Kingdom (UK) are generally net receivers. The quantile-based results further show that US trade policy uncertainty has significant predictive power for supply bottleneck connectedness, especially in the upper quantiles where spillover intensity is elevated. This causal relationship remains robust after controlling for broader adverse supply-side effects. Our findings suggest that US trade policy uncertainty amplifies systemic supply-chain stress, thereby stressing the importance of understanding supply bottlenecks as an interconnected phenomenon rather than as isolated domestic disruptions.