Trade Policy Ambiguity
This paper studies how Knightian uncertainty about the distribution of future trade policies affects current trade flows using a dynamic trade model with a sunk cost of exporting. Qualitatively, trade-policy ambiguity reduces export participation in a similar manner to standard trade-policy risk, but also increases sensitivity to tariff bounds, decreases sensitivity to the likelihood of a tariff increase, and can either increase or decrease sensitivity to tariff persistence. Quantitatively, ambiguity dampens the response of trade to persistent reforms and strengthens the response to transitory reforms.
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Copy CitationJoseph B. Steinberg, "Trade Policy Ambiguity," NBER Working Paper 34408 (2025), https://doi.org/10.3386/w34408.
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