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

Policy Uncertainty, Trade, and Welfare: Theory and Evidence for China and the United States† AbstractWe 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. (JEL D72, F13, F14, O19, P33) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Review American Economic Association

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

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Publisher
American Economic Association
Copyright
Copyright © 2017 © American Economic Association
ISSN
0002-8282
D.O.I.
10.1257/aer.20141419
Publisher site
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Abstract

AbstractWe 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. (JEL D72, F13, F14, O19, P33)

Journal

American Economic ReviewAmerican Economic Association

Published: Sep 1, 2017

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