238 Harkness Hall
University of Rochester
ROCHESTER, NY 14620
Institutional Affiliation: University of Rochester
NBER Working Papers and Publications
|June 2019||Taking Stock of Trade Policy Uncertainty: Evidence from China’s Pre-WTO Accession|
with George A. Alessandria, Shafaat Y. Khan: w25965
We study the effects on trade from the annual tariff uncertainty about China’s MFN status renewal prior to joining the WTO. We have three main findings. First, counter to the evidence elsewhere, trade increases strongly in anticipation of uncertain future increases in tariffs. Second, even though the trade response can be quite large, the probability of a tariff increase was perceived to be relatively small, with an average annual probability of non-renewal of about 5.5 percent. And third, what matters more is the expected future tariff rather than the uncertainty around it. We identify these effects using within-year variation in the risk of trade policy changes around the renewal vote and trade flows. We show that an (s,s) inventory model generates this behavior and that variation in the...