Trade Policy Uncertainty and Its Asymmetric Impact on Investment and Financial Market Volatility in China and India: A Critical Analysis

The resilience of the global trading system has been significantly undermined since the start of the 2000s, as the international system has become less multilateral in terms of liberalisation and more protectionist, strategic trade policies and increased geopolitical tensions. The resulting progress in trade policies has made them more uncertain, and it has become a long-term characteristic of the international economy. This paper will look at how uncertainty in trade policies affects investment behaviour as well as financial market volatility with specific reference to the large emerging economies. The paper combines both the global and country-level trade policy uncertainty indicator with the indicator of import volatility, investment responses, and financial market dynamics using a comparative framework focused on China and India. The analysis places the trade policy uncertainty in the context of the larger structural shift in international trade and finance and it highlights the importance of institutional capacity, trade composition, and market development in determining the economic reaction. The analysis of two economies that have different regimes and structures of trade policies can add to the research on asymmetric transmission in the emerging markets and offer a systematic framework upon which the impacts of long-term policy uncertainty on the investment choices and financial stability interact. Keywords Trade policy uncertainty; Investment behaviour; Financial market volatility; Emerging economies; China; India; Global value chains; Protectionism