“The Economic Effects of Trade Policy Uncertainty”

That’s the title of a new paper by Dario CaldaraMatteo Iacoviello, Patrick Molligo, Andrea Prestipino, and Andrea Raffo:

We study the effects of unexpected changes in trade policy uncertainty (TPU) on the U.S. economy. We construct three measures of TPU based on newspaper coverage, firms’ earnings conference calls, and aggregate data on tariff rates. We document that increases in TPU reduce investment and activity using both firm-level and aggregate macroeconomic data. We interpret the empirical results through the lens of a two-country general equilibrium model with nominal rigidities and firms’ export participation decisions. In the model as in the data, news and increased uncertainty about higher future tariffs reduce investment and activity.
And here’s one set of IRF’s:
Something to keep in mind when considering the evolution of their news-based trade policy uncertainty index:

34 thoughts on ““The Economic Effects of Trade Policy Uncertainty”

  1. pgl

    “We document that increases in TPU reduce investment and activity using both firm-level and aggregate macroeconomic data.”

    So that’s why we failed to see the promised boom in investment from the Trump tax cuts. Trump with his left hand giveth and with his right hand taketh away. Ah but Wilbur Ross has been given all sorts of inside information so as to profit from the stock market so it’s all good!

  2. pgl

    Barry Eichengreen asks if Did Dudley Do Right?


    If the Fed cuts interest rates in response to Donald Trump’s disruptive trade-policy actions, the president may be encouraged to resort to more of the same. Trump believes that the US and China are locked in a trade war to the death. But he also has acknowledged that the stock market reacts negatively to his tariff threats, that trade-related uncertainty weakens growth, and that this damages his reelection prospects.

    The worry is that if the Fed loosens policy, thereby minimizing an uncertainty-induced slowdown in investment and growth, Trump will feel free to escalate his China-focused trade attacks. As Dudley put it, the Fed should make “abundantly clear that Trump will own the consequences of his actions.”

  3. pgl

    Robert Barro in his attack of Trump’s mercantilism fires this off:


    Trump seems to be relying on a theory advanced by his trade adviser Peter Navarro, who has noticed that imports appear with a minus sign in the identity relationship satisfied by GDP. (That is, GDP equals consumption plus domestic investment plus exports less imports.) He concluded that a tariff-induced reduction in imports will lead magically to an increase in domestic production (GDP), which meets the demand previously serviced by imports. Never mind that the certainty of retaliation will lead to a contraction in overall international trade and US GDP. (As an aside, I hope that Navarro did not learn his international macroeconomics while getting a PhD at Harvard University in the early 1980s under Richard Caves, who had very different ideas.)

  4. Bruce Hall

    Uncertainty also leads to change. From Forbes: https://www.forbes.com/sites/panosmourdoukoutas/2019/09/12/india-is-changing-the-game-for-china-and-pakistan-in-kashmir/#4ad4b8bf54b9

    Although the piece was primarily about the tensions between Pakistan, India, and China regarding Kashmir, this little gem was hidden there:

    Besides, China cannot “bully” India, the way it bullies smaller nations in southeast Asia. “In this case, whereas China has been able to bully the smaller nations of southeast Asia, it is unlikely to succeed in intimidating India,” explains Bauman. “Not only is India a large nuclear power, it is an economic competitor, especially as Western manufacturers shift supply chains out of China as a result of U.S. trade sanctions.”

    It’s not always about economics, but uncertainty can affect economics in more than one way. Here, a potential positive for India.

    1. pgl

      Are you really that seriously reading impaired? Did you not get that article is about “the India has consistently expressed concerns to both China and Pakistan on the projects in so-called China-Pakistan Economic Corridor”.

      It seems China is working with neighbors in the region for development and trade and poor little India feels threaten. So let’s count the Indian government in the Trump camp of mercantilism. Heck – India has always had a class system which I bet Trumpians would to emulate.

      1. Bruce Hall

        pgl, are you unable to comprehend a qualifier? Although the piece was primarily about the tensions between Pakistan, India, and China regarding Kashmir….

        1. pgl

          I see – “qualifier” in your book is the right to completely misrepresent what your own link said. How Trumpian of you!

          1. Bruce Hall

            pgl, how uncomprehending of you.

            It was a straightforward sentence with no attempt to hide the overall subject. You simply don’t comprehend points that are not your viewpoint… even direct quotes from an article prefaced by the words:
            “Although the piece was primarily about the tensions between Pakistan, India, and China regarding Kashmir, this little gem was hidden there:”

            You have a real problem there.

  5. Bob Flood

    MC, I suggest having a student document actual trade uncertainty and see if it matches with the perceived. This episode is interesting because there may have been LOTs of trade diversion. So look at dis-aggregated numbers/patterns

    1. Barkley Rosser


      What pray tell is the difference between “actual” and “perceived” trade uncertainty, please?

      1. Barkley Rosser

        OK, Bob, you have not answered my question, which was serious. As it is, I think your comment is completely idiotic and worthless. So, do you wish to either defend it or admit that you made a mistake posting it here?

        As it is, I shall confess that I have serious problems with some of your published work. If you fail to answer my question to you, I may become much less pleasant. Be aware that I am now the senior editor of the next Palgrave Dictionary of Economics, 3800 entries and 15,000 pages. I know all of it, and my sister died last week so I am not in a mood to tolerate idiots, fools, or hypocrites, one of these which I now view as being.

        So, Bob, when you put this incredibly stupid remark here, did you have even the remotest idea what you were talking about?

  6. joseph

    Spencer: “I tend to agree, corporations can not handle Trump being such a loose cannon on economic policy.”

    Yet CEOs will hold their tongue about Trump. It’s easy to explain why.

    As a CEO, growing your business by 10% is a very difficult, hard work, high risk job even in the best of times. If you make the wrong bets, you might lose your job or even worse your multi-million dollar bonus. On the other hand, increasing your profits by 10% due to a tax cut is a no-sweat slam dunk. Your shareholders get their dividends and buybacks and you look like a genius.

    CEOs are never going to turn on Trump.

    1. Moses Herzog

      It’s fun watching a man that belongs to a group that at least traditionally (and arguably even now) is an outcast group of society, sell out his own group and the “reap the benefits” isn’t it??

      Well, we can guess Tim Cook has read “1984” and knows the best course of action is to act like a complete sycophant immediately upon the time your new demagogue takes office. Wonder if Tim Cook is proud of himself for selling out his own social group?? No one “expects” Tim Cook to “wear that hat” 24/7/365. But they might ask why Timmy sells out so quickly to a man who would turn his social group into a lampshades.

    1. spencer

      Oil producers have done a very good job of defending the oil supply chain against terrorists.

      But this attack by drones changes the game on a long run basis. I do not see how producers can easily protect the supply chain against other drone attacks.

      So we should now be seeing a significant upward shift in the risk premium not just for oil, but for the entire world economy.

      I for one, am surprised that the stock market reaction is so muted.

  7. Moses Herzog


    A picture really does get an idea across better than words, doesn’t it?? This is how we got a woman nominated who made us SO COLLECTIVELY NAUSEATED that a signifiant portion of us didn’t want to go to the polls. Well, now we have some Democratic candidates people are very enthusiastic towards, uninvited from debates, while DNC push hard for a senile minnie strokes victim to debate on a national stage, with the man who according to Nate Silver in 2016 had about a <15% chance in Hell of winning. Well, we made it here to Hell kids, and the DNC is still using 2016 party gags because it gets people like Debbie Wasserman Schultz a lifetime job to push donald trump into the White House. Congrats DNC on all "the good works" you do. "The Russians" are starting again early this year huh Tom Perez and Seema Nanda?? Do Tom and Seema call in 3 times per day to the GRU or just once daily now?? Asking for a friend.

    1. Barkley Rosser

      I should not waste time with your demented nonsense, Moses, but my sister died last Wednesday who was very committed to defeating Trump, and I am getting increasingly nauseated by the lunatic fantasies you put up here.

      A big one: sorry, but Debbie Wasserman Schultz does not have an official position with the DNC. You are mired in 2016. Whatever evil conspiracies are being carried out against allegedly “former” homophobe Tulsi Gabbard who is proud of visiting Aleppo with a mass murderer are not due to her. Can you try not to indulge in total crackpottery seriously disconnected from the factual world, please?

      Again, of course, all this is just way off-topic, and I apologize to one and all for indulging Moses here by criticizing him. If my sister had not up and died rather suddenly, I would not have bothered.

      1. Moses Herzog

        @ Barkley Rosser
        I sympathize with the loss of a close loved one. I have lost some loved ones, but the truth is I have lived a very “charmed” life in the sense death of those near to me hasn’t occurred to me often (maybe due to my father’s age when I was born, many of my paternal relatives were already dead). Even my own father’s death was a weird thing, as we never interacted very well. I suspect because of the large age difference (causing generational issues largely out of both of our control). I think I can say semi-assuredly only the loss of one relationship has affected me on a deep level, and that was not due to death, but apparently my own ineptitudes as a human being. All that being said, some people find food helpful in the mourning process. Here, try some of these. They have apparently been “passed down” to many.

        Or you can just try cheap Chinese bourbon and cheap baijiu. That alcohol got me past a very flimsy bridge. That worked very well for me, but I don’t recommend it if you have above the norm responsibilities or other people counting on you.

        I don’t like people who tell the type of lies 5 year olds tell. I spent 7 years of life in a region where that hobby is popular. If someone says they’re “sorry” and apologize it means something. The slate CAN be cleared. But we also have to ask the timing of the apology, the motive for the apology and whether it was sincere. Does copying recipes verbatim and telling people they were “handed down generationally” sound sincere to you?? I mean as a “sincere” mistake by someone who thought she was Native American?? It’s a 5 year old’s kind of lie, which was WHY she apologized. She apologized BECAUSE the lie had passed the point that even a 5 year old could tell Mom and Dad that the family dog ate the 10 cookies out of the lidded jar. YOU can believe those lies if you like, but now even the 5 year old has “come clean” on it, because the lie was no longer viable.

        1. Barkley Rosser

          Thanks for the sympathy, Moses.

          As it is, I will take either Warren or Harris over either Biden or Bernie, and certainly over Gabbard, who was earlier this year defending a homophobic Trump judicial candidate. The stuff you have complained about with W and H is simply trivial compared to Gabbard’s horrors. Joe and Bernie are simply too old, with indeed Biden appearing to be losing his marbles right before eyes, something I think we happen to agree on.

    2. baffling

      this is what happen whey the cabinet is quite bare. almost all of the candidates with potential are simply too young and inexperienced. i will say mayor pete continues to come across as perhaps that special personality that can handle himself in the public eye and has enough intelligence to be a quality leader-but he is still rather young. most of the other young candidates are simply too green in the political world, or otherwise lack “IT”, for lack of a better word, right now. i would love to replace sanders, biden and warren with some young and charismatic LEADER whom i would feel confident could make the tough, right calls. but when i call for them, all i get is bueller, bueller, bueller.

  8. Moses Herzog

    We have Copmala out here, fighting for African Americans and other minorities every day. Because Copmala remembers crying her little eyes out on the school bus everyday on her way to the suburban white school. Life has been “so tough” for Copmala:


    BTW, it’s a fair question to ask, so before you ask I’m gonna tell you, the numbers quoted in the 2nd Twitter link above were taken from Forbes magazine/website.

    You know why Copmala becomes deaf, blind, and dumb whenever the topic of Medicare comes up?? The first Twitter link above should give you a ‘rough idea” there. But some people in this blog’s comment section think she’s going to pull big numbers with the immigrant voter crowd which Copmala also never went to bat for in California, so I’m sure that 7% she’s getting in Florida and Texas is gonna spike up any day now.

    1. baffling

      “so I’m sure that 7% she’s getting in Florida and Texas is gonna spike up any day now.”
      how you poll in a primary is not necessarily how you poll in a general election. you think those immigrant votes in texas would go trump in a general election?

    1. pgl

      Lord – you commentaries on this are beyond Trumpian. Yes we are all leftist socialists to sycophants like you. But come on Brucie – AEI has to make this easy for you? I guess why they could not be bothered to distinguish between a nominal v. a real income increase. Oh wait – you would not know the difference anyway. Never mind!

    2. pgl

      There is something else very incomplete if not misleading in this AEI graph. Notice how all reported groups are doing better than the overall population (overall growth = 0.9% which is real or nominals? Who knows but don’t ask Brucie as he is too stupid to even care). Well if the reported groups are doing better than the overall then basic statistics says some unreported groups are doing worse. Again – don’t bother to ask Brucie as again he is too stupid to even care.

  9. Moses Herzog

    @ Menzie
    ZH blog is hitting the semi-panic button on oil/gas prices. Would b curious to know Professor Chinn’s (or Prof Hamilton’s, but preferably Chinn’s as he seems to keep “closer tabs” on the blog) sees it?? Like, am I being a doofus if I go ahead and load up the car on gas this Sunday night??

    I’m kind of imagining Prof Chinn chuckling to himself as he reads this, but I would appreciate if he could put his thoughts here in the comment section on it. Thanks ahead of time.

  10. Moses Herzog

    To say that we now “live in interesting times” really, in my view, doesn’t seem to do it half justice:

    Please remember folks, the Republican party is the party of “family values” and is conservative. Now if you’re a Republican woman, where do you fit in those conservative values?? I guess you’ll just have to wait to be caught in a social situation with a “conservative” like Bret Kavanaugh to find out, won’t you?? Good luck with that. Who are the “strong women” of the Republican party who would be very comfortable to be alone with Bret Kavanaugh??
    Susan Collins (Maine), Deb Fischer (Nebraska) , Cindy Hyde Smith (Mississippi), Shelly Moore Capito (West Virginia)

    Did I leave any “strong women” of the Republican party out?? Please let me know if I left any “strong women” out of that list. These are women are who are “strong women”. If you are a “strong woman” who lives in any of the four states mentioned make sure you get out and vote for those four Republican “strong women”, then you can be a “strong woman” also. Won’t that be, like, cool, and dope, and stuff???

    1. Moses Herzog

      BTW, don’t expect David Brooks to write any kind of a denunciatory and/or fault-finding column on the female Senators who put a stamp of approval on an obvious sexual bully being a member of the Supreme Court. That’s never going to happen, because that would be “identity politics” and Brooks is totally against THAT. Sexual predators on the other hand?? Well as I said—THAT Brooks column criticizing Republican women signing off on a sexual aggressor won’t be written—because David Brooks knows it’s “identity politics” that puts our society in serious danger.

      1. baffling

        if conservatives and republicans are willing to put scum in the white house (we have seen his abusive and misogynistic behavior already), you think they really have any problem with the same on the supreme court? dick stryker, our local blood red compassionate conservative, made it very clear republican candidate foul behavior is easily overlooked if they can produce legislative or judicial gains. it is all about winning. look at the hypocritical behavior of moscow mitch if you want to understand the power of the end game. perhaps fellow members of the supreme court will become a bit more activist. roberts may be susceptible to such pressures both inside and outside the courtroom.

    2. Moses Herzog

      Some thoughts on David Brooks from Matt Taibbi and some pretty intelligent people. You might have noticed I dislike David Brooks. That’s because I don’t think any human being is actually useless, but if there did exist a human being who was worthless, they would strongly resemble David Brooks:

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