Unpacking the Effects of Trade Policy Uncertainty on ASEAN Economics

Trade policy uncertainty (TPU) has reached record highs in recent years. This paper builds granular TPU measures for several ASEAN economies that distinguish between protectionist and trade agreement-based uncertainty, as well as differences between ‘own’-country TPU shocks and third-party TPU shocks (i.e., spillovers from TPU in trading partner economies). It finds that third-party TPU shocks are most detrimental to output per capita through weaker investment and private consumption, and despite improved trade balances. Own protectionist TPU shocks reduce trade balances and raise inflation. In contrast, own agreement TPU shocks are linked to a modest, temporary boost to output, likely reflecting anticipatory investment.