American Economic Review Vol. 107 No. 9 2017

Policy Uncertainty, Trade, and Welfare: Theory and Evidence for China and the United States

Kyle Handley¹; Nuno Limão²

¹ Ross School of Business, University of Michigan, 701 Tappan Street, R3390, Ann Arbor, MI 48109 (email: ) · ² Department of Economics, University of Maryland, Tydings Hall, College Park, MD 20742, and NBER (email: )

Abstract

We examine the impact of policy uncertainty on trade, prices, and real income through firm entry investments in general equilibrium. We estimate and quantify the impact of trade policy on China's export boom to the United States following its 2001 WTO accession. We find the accession reduced the US threat of a trade war, which can account for over one-third of that export growth in the period 2000– 2005. Reduced policy uncertainty lowered US prices and increased its consumers' income by the equivalent of a 13-percentage-point permanent tariff decrease. These findings provide evidence of large effects of policy uncertainty on economic activity and the importance of agreements for reducing it.

DOI

10.1257/aer.20141419

Volume

107

Issue

9

Pages

2731-2783

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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