Measuring the spillover effects of policy uncertainty on China’s lithium supply chain

The implementation of global energy transition and geopolitical competition have increasingly intertwined China's lithium supply chain with commodity markets and economic and trade policies. This article analyzes the impact of policy uncertainty on China's lithium supply chain from January 2017 to September 2023, employing a Time-Varying Parameter Vector Autoregression (TVP-VAR) model and Linear and Nonlinear Causal Testing methods. The empirical results reveal significant dynamic spillover effects between commodity markets at different segments of the lithium supply chain. These spillover effects are found to be highly responsive to policy changes, with increased volatility observed in response to policy shifts. Specifically, economic policies primarily influence spillover effects within the midstream market, whereas trade policies predominantly affect those in the upstream and downstream markets. Moreover, the spillover effects induced by trade policy shocks are found to be more pronounced than those resulting from economic policy shocks. Therefore, policymakers should fully acknowledge the substantial spillover effects between policy shocks and the lithium supply chain market and incorporate these insights into the formulation of relevant policies, with particular attention paid to their potential impacts on the stability of the lithium supply chain.