Yikes! Trade and Economic Policy Uncertainty

First, overall (news-based) economic policy uncertainty:

Figure 1: Economic Policy Uncertainty index (blue), and centered seven day moving average (red). Source: policyuncertainty.com accessed 6/11, and author’s calculations.

Second, how the trade policy component has jumped in the Trump era.

Figure 2: Economic Policy Uncertainty index (blue), and trade policy categorical index (dark red), through March 2018. Source: policyuncertainty.com accessed 6/11.

39 thoughts on “Yikes! Trade and Economic Policy Uncertainty

  1. PeakTrader

    I’ve seen many more crazy mainstream media headlines than normal recently.

    The “journalists” must be running around in circles with their hands in the air, like Mel Brooks in that movie.

    1. rtd

      I can certainly see where someone like Trump is likely to induce articles of “uncertainty” from an index of mainstream newspaper outlets. Similarly, I wouldn’t be surprised if an approach using conservative-leaning sources e.g. FoxNews and the NewYorkPost during Obama’s tenure would result in higher “uncertainty” than reported by news-based EUPI at that time (yes, I realize the EPUI uses newspapers exclusively but this is a thought experiment). The objectiveness of the index is questionable. Maybe someone (Menzie?) with more in-depth knowledge of the methodology could support/refute – I didn’t see anything on the news-based EUPI “methodology” page to suggest otherwise.

    2. Barkley Rosser

      Of course you are right, PT, The journos and markets are just silly to get upset over Trump setting off a trade war with our largest trading partner and refusing to sign a communique coming out of a G-7 summit. This is all to be expected and nobody should feel any policy uncertainty whatsoever, not to mention that those no good once-upon-a-time backstabbing allied leaders are all going to rot in hell, damn them!

      1. CoRev

        Barkley, I hear an interesting description by a woman journalist of the issue this AM. To paraphrase her: Trudeau tried to out alpha the alpha dog and got his err, umh, hat handed to him.

      2. PeakTrader

        You’ve been brainwashed into believing Trump wants a trade war. When words and threats don’t work, to lower trade barriers and level the playing field, action is required.

        The American people and markets haven’t reacted much to the hysterical mainstream media. Journalists provide both sides of a story, not consistently over 90% negative on one side.

  2. Moses Herzog

    I don’t really like Larry Kudlow, I don’t really respect Larry Kudlow. But in the end analysis, Larry Kudlow is a human being, and of of God’s Chosen people (It’s my personal belief God chose the Jews for a reason, a positive reason that they are an inherently good and exceptional “tribe”). I hope Kudlow recovers, gets healthy, and returns with a lot of vigor (hopefully for more worthy and valuable life goals than being one of Trump’s whipping boys that Trump can chew up and spit out when things aren’t going well)

    The news, from the man who most likely provoked/induced the heart attack himself

    BTW, I could care less what Kudlow’s personal habits are. I’d be happy to personally pour the man out two bottles of any liquor he likes—-providing he doesn’t hurt other people as a result of that “imbibing”.

    1. pgl

      I echo your thoughts. Whatever Kudlow does at home late at night is his business. But his day job is lying 24/7 in support of tax cuts for the rich. For him to pretend to be an economist is a pathetic joke.

      1. 2slugbaits

        And he cannot even pretend to be an economist. He has no formal economics training whatsoever. He has a B.A. in history. That’s it. And the only reason he got that far is because he was a tennis star in college.

        1. pgl

          Well he was also willing to write whatever his political bosses wanted him to write in the National Review. And for that – he has been the laughing stock of the economist blogs for a generation.

      2. Moses Herzog

        In fairness his wiki page strongly implies he took some graduate level economics classes at Princeton. But why not FINISH??? Not finishing out doesn’t spell out scholastic accomplishment in the subject. It’s spells out either below par performance or a quitter. I know not finishing something you started in pursuit of a degree wouldn’t have counted for crap as far as my father was concerned.

        1. pgl

          Donald Luskin went to Yale. Of course he dropped out during the first semester of his freshman year.

  3. Moses Herzog

    Article about illegal immigrants in NYT, by Miriam Jordan

    One sentence jumped out at me. “No charges have been filed against the company.” “Shocking”. That “never” happens. The name of that company is Southeastern Provision . Now you’ll notice our government has plenty of time to break up families, separate children from their parents, and the folks at FOX news have plenty of time to lecture the idiots assembled around the TV that “well, they’re all rapists and murderers anyway” in the profound and esoteric way that only FOX News can.

    And you’ll also notice that the fines and penalties (jail time??) on bastards like Lou Dobbs and Southeastern Provision will be laughable if they ever come at all. Jeff Sessions has plenty of time to make families’ lives a living hell. But large companies who knowingly and illegally employ the people who are such a “festering puss wound”—well we can just pretend Southeastern Provision and their fellow illegals employing brethren were performing a public service by giving ICE’s knucklehead losers something to do with their free time.

    Another portion of Miriam Jordan’s story I lifted verbatim from her NYT article:
    “Federal authorities said there was evidence that the company had run afoul of the law. In an affidavit, the Internal Revenue Service said the company had withdrawn millions of dollars in cash and told bank employees the money was needed to pay “Hispanics”— suggesting that the company knew it was hiring undocumented workers and evaded payment of federal employment taxes. An informant hired at the plant in 2017 told investigators that workers felt they couldn’t complain about poor working conditions because of their immigration status. Some had to work unpaid overtime, the informant reported. He said he saw others required to work with “extremely harsh” chemicals without protective eyewear.”

    Well the boys at ICE and IRS and Jeff Session’s Justice Department don’t need to do anything to the leadership of Southeastern Provision. After all, it’s Southeastern Provision’s “God given right” to crap on illegals and treat them as if they are all sub-human because…..well just because….. Attorney Jeff Sessions wouldn’t have it any other way.

  4. Moses Herzog

    Does anyone else get the strange sense that Menzie is gonna write a screenplay for a horror/slasher film someday called……

    “Policy Uncertainty!!!!”

    The only questions left are, which hot chick gets knifed first after she hides in the room with all the knives hanging on the wall and is the black guy gonna be the first to die as he tries to warn the white characters of impending doom, but the starter on his purple and silver 1971 Ford Ranger pickup only cranks but won’t quite start on multiple tries and then a man whose face we can’t make out with extremely small hands and an orange tinged head walks up from behind and…….??

    This choose your own adventure blog comment sponsored by “2018 Is For Real Homies” Studios LLC

  5. CoRev

    I realize Trade ?Economic? policy is important to the economics world view, but it is a myopic view. I was looking for an impact of the 2015 Iran Nuclear Deal, and there was none. I then looked for the impact of the 2017 – 2018 good US economic news and again no clear impact. There was an emphasis on actions affecting international trade So this appears to be more an international trade news index versus economic news negative trade index. Moreover, its measures appear to be based upon mainly negative speculative articles and not actual results. Or at least Menzie’s charts seem that way.

    Therefore the Yikes, seems to be based upon speculative fear and not reality.

    1. 2slugbaits

      CoRev It’s not measuring good news or bad news; it’s measuring the frequency of certain words that are associated with a sense of policy uncertainty. That’s why it’s called an uncertainty index. Trump likes to pride himself on being a trade disrupter, so why should we be surprised to see spikes in trade uncertainty every time he opens his mouth?

      1. CoRev

        2slugs, I know what its measuring. It just seems to be measuring the wrong things. My point was that I see little reference to general economic events, and it appears heavily weighted toward trade. The words forming the metric look like those associated with fearful speculation.

        1. Menzie Chinn Post author

          CoRev: You’ll see the dominance of trade policy in the overall index is a recent phenomenon. That’s what the monthly series graphed indicate. Pre-Trump, generally other issues (monetary, fiscal, regulatory) dominate.

          1. CoRev

            Menzie, thanks for the explanation. I guess when the economy is doing so well it wouldn’t be a concern.

        2. baffling

          “My point was that I see little reference to general economic events, and it appears heavily weighted toward trade.”
          corev, would you care to share with me where you obtained this information? it would be interesting to obtain a survey of which words are driving the index at various points in time.

  6. pgl

    Checking trade data at http://www.census.gov is enlightening. Did you know we imported $2.79 billion worth of cane & beet sugar in 2011 but only $1.65 billion of it in 2017?

    I doubt this was due to healthier eating habits. Global prices of sugar didn’t exactly spike during this period. Then again – Americans are paying much higher sugar prices than the rest of the world.

    Blame this on quotas and/or tariffs if you like. Then again Michael Bloomberg is running around trying to convince local governments on hefty soda taxes. I guess my former mayor is a commie!

  7. Neil

    Where exactly is this data coming from? The data download from the website does not show the index going as high as 300 recently. Has it been revised away? Despite the rise in policy uncertainty, do you find it surprising the market measures of volatility like the VIX index remain low?

    1. Menzie Chinn Post author

      Neil: For the daily data, it’s exactly as stated in the notes — daily series downloaded on 6/11. 6/12 version will undoubtedly differ. And 6/13 will differ again. I think you can retrieve the different vintages on the website somewhere.

      I do find it interesting that VIX differs. In fact, the various measures of economic uncertainty — there are now several — differ substantially. See this post for discussion — and as well see the CEPII brief referenced therein.

  8. Ed Hanson

    As it is said, the measurement of EPU is of words. There are two major news of importance currently. One is the trade issues, with the G7, Canada and retaliation; each being widely written about. The second is the N. Korea news which every report must include the economic terms that the US wants trade with NK to expand when the nuclear and missile issues are resolved. Because the economic desires were part of the official announcement, essentially every news article will carry those words.

    Two major news fronts both froth with economic terms – spike in EPU.


      1. Ed Hanson

        heck if I know, just say the economic words are used a whole lot in both news stories.


        1. pgl

          The other (clean) definition is:

          “worthless or insubstantial talk, ideas, or activities”.

          Great example – every Trump tweet!

      2. pgl

        “a mass of small bubbles in liquid caused by agitation, fermentation” is one definition. Urban Dictionary takes this to a whole new level which if I repeat would likely get me censured!

          1. Moses Herzog

            Quiet!!! The both of you. I’m the expert on what gets past the filter on this blog. I learned everything I know about it from William Burroughs. And I won’t have anyone attempting to outdo me in seediness, disgustingness, vile use of language, or just being a general out-and-out clod. I’ve worked too hard to get where I am here.

  9. Not Trampis

    Trump knows the cost of everything and the value of nothing.

    Imagine it is a US President trying to get rid of a rules based trading system.
    Yet again showing he is no conservative.

    1. 2slugbaits

      I liked it when Trump started talking about building condos on the NK beachfront. I’m not kidding.

  10. JBH

    Of what use is the baseline overall index? What economic time series does it correlate with? Does it help one to understand markets in real time? Is it a leading indicator of anything? References to any studies on this appreciated.

  11. JBH

    Of what use is the baseline index? Does it correlate with any important economic time series? Does it help one understand markets in real time? Is it a leading indicator of anything?

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