Taking Stock of Trade Policy Uncertainty : Evidence from China’s Pre-WTO Accession
This paper studies the effects on international trade from the annual tariff uncertainty about China’s Most Favored Nation (MFN) status renewal in the United States prior to joining the World Trade Organization. The paper makes four main findings....
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| Language: | English |
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World Bank, Washington, DC
2021
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| Online Access: | http://documents.worldbank.org/curated/en/315811613658370461/Taking-Stock-of-Trade-Policy-Uncertainty-Evidence-from-China-s-Pre-WTO-Accession http://hdl.handle.net/10986/35181 |
| Summary: | This paper studies the effects on
international trade from the annual tariff uncertainty about
China’s Most Favored Nation (MFN) status renewal in the
United States prior to joining the World Trade Organization.
The paper makes four main findings. First, in 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 4.5 percent. Third, what matters more
is the expected future tariff rather than the uncertainty
around it. These effects are identified using within-year
variation in the risk of trade policy changes around the
renewal vote and trade flows. 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
within-year trade policy induced stockpiling reduce
entrants’ incentive to operate in a market with tariff
uncertainty. The results explain why trade may hold up in
advance of a prospective policy change, such as Brexit or
the US-China escalating tariff war of 2018-19, but may fall
sharply even if expected tariff increases do not materialize. |
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