Research On Trade Policy Uncertainty And Its Macroeconomic Effect

Although all countries in the world have been committed to building a fair,open and stable international trade system for a long time,due to differences in the distribution of interests among countries in the process of global economic development and the inability of existing multilateral trade organizations(such as WTO)to impose strong constraints on their trade policies,it is possible for all countries to adjust their own trade policies,while the outside world can not accurately predict whether,when,and how their trade policies will be adjusted.Trade policy uncertainty is still an unavoidable problem in the development of international trade.After the 2008 financial crisis,governments of all countries are taking various measures to prevent their own economic downturn.This situation has aroused widespread concern about the trade policy uncertainty in the world,that is,they are worried that countries may adopt the "beggar thy neighbor" trade policy as they did in the "Great Depression",which has led to a global trade war.This concern about the trade policy uncertainty has not been gradually eased with the recovery of the economies of various countries,but has intensified in recent years.After the former U.S.President Trump came to power,he insisted on pursuing the "America First" policy and continuously provoked trade frictions with other countries.In addition to the United States,Japan has excluded South Korea from the "white list" of trade preferences,which has also caused trade disputes among Asian countries.Due to the UK's vote to leave the EU,the EU's trade policy environment has become clouded.Besides,the global outbreak of COVID-19 has also increased the potential trade policy uncertainty.Among the events leading to the increase of Global trade policy uncertainty,the China-US trade friction is undoubtedly the most closely related to China.Since the US is China's largest trading partner,the China-US trade friction is bound to have an important impact on China's macroeconomic operation.Therefore,combining the basic facts of this China-US trade friction to study trade policy uncertainty and its macroeconomic effects will help us to understand the characteristics of trade policy uncertainty and its relationship with macroeconomic operations.It can also provide a certain basis for evaluating the impact of this ChinaUS trade friction on China's macroeconomics.Chapter 1 is the introduction,which elaborates the research background,the significance of the topic,the research content,the research method,the research innovation,and the research shortage of this article.Chapter 2 is the literature review,which reviews the existing literature from four aspects: theoretical and empirical research on trade policy uncertainty,research on endogenous uncertainty and impacts of policy uncertainty.Next,this paper studies the characteristics of trade policy uncertainty itself from two perspectives.In Chapter 3,this paper analyzes and compares the three methods of measuring trade policy uncertainty,and selects the best way to lay a foundation for the related research contents in the following chapters.In Chapter 4,this paper discusses whether trade policy uncertainty is the endogenous response or exogenous shock of macroeconomic fluctuations,which provides guidance for the later theoretical modeling.Then,this paper studies the economic effects of trade policy uncertainty from the perspectives of theoretical modeling and empirical estimation.In Chapter 5,this paper conducts constructs an open DSGE model including heterogeneous enterprises to simulate the impact of trade policy uncertainty changes on China's macroeconomic operation,and discusses its mechanism.In Chapter 6,this paper constructs the set of shock-based restrictions based on simulation results and the actual situation,and conducts an empirical study on the economic effects of trade policy uncertainty shocks.Finally,in Chapter 7,this paper summarizes the relevant research contents above,draws the research conclusions of this paper and puts forward relevant feasible suggestions.Specifically,the main conclusions are as follows:(1)Combined with the basic facts during the China-US trade friction,this paper compares the three trade policy uncertainty measurement methods,and finds that in terms of the actual situation in the process of China-US trade friction,the "tariff measurement method" based on the extent of adverse changes in trade policy can not accurately measure the trade policy uncertainty;when the ‘stochastic volatility method' is used to measure the trade policy uncertainty,the tariff fluctuation that has been informed in advance will also be included in the uncertainty index,and the offsetting effect caused by the reverse change of different commodity tariff rates during the China-US trade friction cannot be identified,which underestimates the trade policy uncertainty;the trade policy uncertainty index constructed by text analysis of newspapers can better reflect the trade policy uncertainty of the two countries in the process of China-US trade friction,and its rich time-varying nature can also reflect the alternating changes of tension and relaxation of economic in a period of time.(2)The study on the endogenous of trade policy uncertainty finds that the positive shock of trade policy uncertainty will reduce the growth rate of industrial added value,while the sign of trade policy uncertainty's response to the shock of the growth rate of industrial added value is ambiguous.Therefore,it can be considered that the trade policy uncertainty is a cause rather than a result of China's macroeconomic fluctuations.The results of variance decomposition show that the shock of trade policy uncertainty has a strong explanatory power on the industrial added value,that is,the change of China's trade policy uncertainty has a relatively important impact on economic fluctuations.In addition,through the analysis of the single solution found with the help of instrumental variables,we found that the trade policy uncertainty shock have obvious right-skewed and thick-tailed non-normal distribution characteristics.(3)When constructing a heterogeneous open DSGE model to analyze the impact of trade policy uncertainty shock on macroeconomic operations,this paper uses China's 2017 import and export product-level data provided by Harvard University's economic complexity database and the United Nations Comtrade database to simulate China's average tax rate change.And it is found that the average tax rate of Chinese imported goods will rise by about 2% if China imposes new tariffs on imported goods originating in the United States under the circumstance that the product structure and the composition of source countries remain unchanged.In addition,based on the analysis of China Industry Business Performance Data,it is found that the average annual export market entry rate of non-export enterprises is 9.70%,and the average annual export market exit rate of export enterprises is 12.78%.The results of simulation show that China-US trade friction will lead to the macroeconomic downturn,that is,investment,consumption,employment and output will decline at different ranges.In the process of China-US trade friction,the "downward effect" caused by the rising trade policy uncertainty accounts for about 30% to 40% of the total effect.In the analysis of the transmission mechanism,it is found that the entry of new firms and the exit of incumbents are the core transmission mechanisms that produce the impulse response results of the benchmark model in this paper,in addition,nominal rigidities,commodity preferences,consumption habits and investment adjustment costs will all have a certain impact on the results of impulse response.(4)In the empirical analysis of the impact of trade policy uncertainty on macroeconomic operation,it is found that the impulse response sign of the Macro prosperity index,which reflects the overall macroeconomic operation,to the shock of trade policy uncertainty is negative.Among the specific indicators reflecting macroeconomic operation,the year-on-year growth rate of industrial added value is most affected by the trade policy uncertainty shock.The results of variance decomposition show that the explanatory power of trade policy uncertainty shocks to the Macro prosperity index increases gradually in the first five periods after the shock,and remains at a high level in the long run.The trade policy uncertainty shock explains more than 20% of the changes of year-on-year growth rate of industrial added value,total consumer goods and total import trade.The time-varying analysis of the trade policy uncertainty shock shows that the impulse response of Macro prosperity index is relatively stable before the China-US trade friction,but it is significantly enhanced during this trade friction.The impulse response value of the year-on-year growth rate of industrial added value decreased rapidly in a short period of time,and then gradually rose during the current China-US trade friction without reflecting the characteristics of "gradually declined first,gradually rose after";compared with the other two indicators,the impulse response peak of the year-on-year growth rate of total retail sales of social consumer goods appears later and has a certain long-term effect;the impulse response value of the year-on-year growth rate of the total import trade increased first and then decreased,and its variation range increased significantly during the China-US trade friction.The innovations of this article are mainly reflected in the following four aspects:(1)In terms of research perspectives,this article does not focus on the micro level like most literature,mainly to study the impact of the decline in trade policy uncertainty on firm's decision,but choose to research the related issues of trade policy uncertainty from a macro perspective,and analyze the impact of rising trade policy uncertainty on China's macroeconomic operation from both theoretical and empirical aspects.(2)Regarding the measurement of trade policy uncertainty,this article does not directly choose a specific method to measure trade policy uncertainty.Instead,it combines objective facts in the course of this China-US trade friction.Analyze and compare the accuracy of the three measurement methods,“Tariff Method”,“Uncertainty Index” and “Stochastic Volatility”,and choose the best method that fits the basic facts of this China-US trade friction to measure the trade policy uncertainty and its changes.(3)In terms of theoretical models,this article combines the basic facts that new entrants have a great contribution to China's economic growth and they also have higher entry rate and exit rate.In the process of modeling and analysis,by introducing new firm's entry and incumbent exit mechanism,it not only analyzes the impact of trade policy uncertainty on the firms' foreign market participation decision,but also explores the impact of trade policy uncertainty on the new entrants' entry decision.At the same time,in order to make the model more in line with China's national condition and making the results of simulation realistic,this article calibrates the sunk costs of different types of enterprises when they enter the export market based on Chinese enterprise-level data,and estimates the changes in the average tariff burden of Chinese imports during the China-US trade friction based on China's imported product-level data.(4)Regarding empirical research,this article does not directly regard the changes in trade policy uncertainty as exogenous shocks,but attempts to analyze whether changes in China's trade policy uncertainty are the shocks that lead to economic fluctuations or the response of economic fluctuations.Secondly,when empirically analyzing the impact of trade policy uncertainty on China's macroeconomic operations,this paper constructs sign restrictions based on the numerical simulation results of the DSGE model,and at the same time constructs narrative restrictions based on the basic facts of China-US trade frictions,and in the process of empirical analysis,sign restrictions and narrative restrictions are simultaneously applied to identify trade policy uncertainty shocks.