Trade Uncertainty, Economic Policy Uncertainty and Shipping Costs

Abstract We examine how trade and policy uncertainty affect shipping freight rates, using a Bayesian Vector Autoregression (BVAR) model. Trade uncertainty has a strong effect on shipping costs, even though the effects become insignificant within a year. On the other hand, policy uncertainty has a slightly smaller initial effect but tends to have longer-lasting effects on shipping costs. Trade uncertainty tends to benefit European stocks, perhaps as investors may believe that consumers will shift to local companies, with the impact on US stocks also being (mildly) positive, despite the (lagged) deterioration in economic activity. Trade uncertainty tends to have a longer-lasting impact on GDP than policy uncertainty, given then known merits of comparative advantage, while the effect of policy uncertainty is higher in the European markets compared to the US ones.