Time–Frequency Nexus of Geopolitical Tension, Economic Uncertainty and Trade Flows: Wavelet Coherence-based Evidence from China and the USA

S. Bisiriyu

Abstract

This study examines the time–frequency interdependence between geopolitical tension (GPR), economic policy uncertainty (EPU) and trade flows in the world’s two largest trading economies—China and the USA—using wavelet coherence analysis on monthly data from January 2006 to February 2024. The findings reveal that the significant effects of GPR and EPU on trade flows are predominantly concentrated in the short run, with more pronounced medium- to long-term coherence during major uncertainty episodes. EPU exerts a more persistent influence on trade flows than GPR, with the USA exhibiting greater sensitivity to policy uncertainty, while China’s exports demonstrate comparatively stronger resilience. Overall, the results suggest that the trade effects of GPR and EPU are largely episodic rather than persistent and that disruptions in China’s and the USA’s trade flows may serve as early warning signals of policy risks and broader spillover effects in the global market, thereby highlighting the need for adaptive, diversified and resilient trade strategies. JEL Codes: F14, F62, E60, C22, F51

Source: semanticscholar

Read the AI summary, key takeaways and discussion on WOBR Quant Research.