Impacts of Trade Policy Uncertainties on US-China Bilateral Trade

The escalating Sino-US trade war has led to a global economic contraction and increased trade policy uncertainties. This study examines the impacts of the US and China's Trade Policy Uncertainties (TPU Indexes) on these countries' Bilateral Trade Balances (BTBs). Empirical findings reveal that both increases and decreases in the TPU Indexes of both the US and China significantly affect their respective BTBs. Furthermore, it can be concluded that China's trade policy or Chinese exporters-importers react to China's trade policy uncertainty within China more than the US trade policy or US exporters-importers to US trade policy uncertainty within the USA. Another important conclusion is that China's trade policy or exporters-importers react more to their own trade policy uncertainty than the US's trade policy uncertainty within China. The policy implications generated from the empirical findings of this study for policymakers in both countries are presented in the paper's final section.