Transnational Spillover Effects Of U.S. Economic Policy Uncertainty In China's Economy

In recent years,in order to consolidate the global strategic position and realize the domestic economic recovery,the U.S.government has adjusted economic policies frequently and increased the U.S.economic policy uncertainty.The uncertainty of a country's economic policy will not only affect domestic investment,consumption,output and other variables,then cause domestic macroeconomic fluctuations,but also produce significant spillover effects,then affect the macroeconomic operation of other countries.As China has highly integrated into the global economic and financial system,the correlation between two countries have become more close.At the same time,as the increased of China's comprehensive national strength and international status,China's influence in the reform of global governance system and international order has also aroused the fear of the United States,which has repeatedly used trade as a breakthrough to put pressure on China for many times in last two years.Therefore,under the background that trade disputes between China and the United States are still protracted and complex,and China's new normal economy is under great downward pressure,this paper studies the tansnational spillover effects of the U.S.economic policy uncertainty in China's economic operation systematically and emperically.First,this paper analyzes the channels and mechanisms that the U.S.economic policy uncertainty affect China's economic operation.Based on existing literatures and empirical analysis,this paper elaborated the channels and mechanisms of the transnational transmission of the U.S.economic policy uncertainty,and empirically tested the three proposed transnational channels by using the structural vector autoregressive model and impulse response functions.The results show that: first,the U.S.economic policy uncertainty will affect China's economic operation through three channels: international trade,foreign direct investment and international financial market.Specifically,the increased of the U.S.economic policy uncertainty will cause the decreased of China's exports to the U.S.,the increased of China's foreign direct investment level and the decline of China's stock market asset return.Second,China's industry-level analysis shows that there is still industry heterogeneity in these three channels.Specifically,in the international trade channel,when the U.S.economic policy uncertainty is rising,the Chinese industries that more dependent on the U.S.consumer market,their exports to the U.S.will decrease more.Moreover,this heterogeneity is mainly influenced by the U.S.trade policy uncertainty.In the channel of foreign direct investment,when the U.S.economic policy uncertainty is rising,the Chinese industries that more dependent on foreign investment,their FDI level will increase more.Moreover,this heterogeneity is mainly influenced by the U.S.monetary policy uncertainty.In the channel of the international financial market,when the U.S.economic policy uncertainty is rising,the Chinese industries that have more preference degree from the U.S.investors,their stock market asset return will decline more.Moreover,this heterogeneity is mainly influenced by the U.S.fiscal policy uncertainty.Secondly,this paper examines the effects of the U.S.economic policy uncertainty in China's economic output.Through theoretical model analysis,this paper expounds that the U.S.economic policy uncertainty may affect China's economic output through wealth effect and crowding out effect.Then,using time-varying structure vector autoregressive model and time-varying impulse response function,this paper investigates the direction and intensity of the effects of the U.S.economic policy uncertainty in China's economic output in different time periods.The results show that: first,as time goes on,the effects of the U.S.economic policy uncertainty on China's economic output have a non-linear time-varying feature,showing an "inverted hump".At the beginning of China's accession to the WTO,the U.S.economic policy uncertainty would not have a negative impact on China's economic output.However,before and after the international financial crisis in 2008,the effects of U.S.economic policy uncertainty in China's economic output is mainly manifested as wealth effect,which will lead to the decline of China's economic output.However,since 2015,the effects of the U.S.economic policy uncertainty in China's economic output is mainly manifested as crowding out effect,which will help to improve China's economic output.In addition,the effects of the U.S.economic policy uncertainty in China's inflation rate,the monetary growth rate and the China's economic policy uncertainty are also non-linear.Second,the effects of the U.S.economic policy uncertainty in China's economic output is heterogeneous at the regional,industrial and enterprise levels.Among them,China's northeast and western areas,China's less technology-intensive industries,China's small and medium-sized enterprises and private enterprises are more affected by the U.S.economic policy uncertainty.Thirdly,this paper examines the risk linkage effects between the U.S.economic policy uncertainty and China's systemic financial risk.This paper uses quantile regression model and strict quantile unilateral test method to compare and analyze 12 indicators of Chinese systemic risk from the perspective of real economy risk prediction.The results show that: first,indicators reflecting individual institutional risks,volatility and instability,as well as liquidity and credit conditions have a magnifying effects on the risk of the real economy,that is,the increased of current systemic risk will significantly increase the downside risk of the real economy in the future.Second,in the short term,indicators reflecting the individual risks and liquidity of institutions can well predict future real economy risk,while indicators representing the level of financial market volatility have a better prediction effects in the medium and long term.Subsequently,this paper uses the time-varying Copula model to calculate the risk linkage effects between the U.S.economic policy uncertainty and China's systemic risk.The results show that after the international financial crisis in 2008,the risk linkage effects between the U.S.economic policy uncertainty and China's systemic risk was significantly enhanced.Moreover,when the U.S.economic policy uncertainty increases,the response of China's systemic risk is more obvious in the short term and weak in the medium and long term.Further,this paper examines the risk linkage effects between the systemic risk of China's five financial sectors and the U.S.economic policy uncertainty,finds that when the U.S.economic policy uncertainty increases,in the short term,the response of China's trust sector is obvious,and in the medium and long term,the response of China's securities sector is obvious.In addition,from the perspective of agricultural trade,this paper also investigates the effects of the U.S.trade policy uncertainty in the agricultural trade between China and the United States by using the time-varying structure vector autoregressive model and time-varying impulse response function.The results show that: first,since the trade friction broke out in 2018,the effects of the U.S.trade policy uncertainty will lead to an obvious decline in both China's exports and imports of agricultural products to the United States.And China's agricultural imports from the United States have fallen more sharply than China's agricultural exports to the United States.Second,the effects of the U.S.trade policy uncertainty are stronger than the traditional effects factors,such as exchange rate.Third,the further analysis of this paper shows that the effects of the U.S.trade policy uncertainty in the agricultural trade between China and the United States also has industrial heterogeneity.Among China's agricultural products,food and beverage,tobacco products,plant products and other industries that are highly dependent on the United States will be more vulnerable to the U.S.trade policy uncertainty.Fourth,soybean products as the main products in China's agricultural imports from the United States,the increased of the U.S.trade policy uncertainty will have a devastating impact on their amount and value of imports.Finally,based on the conclusions,this paper also puts forward some policy suggestions to prevent the transnational spillover effects of the U.S.economic policy uncertainty in China's economic operation.