The Impacts of United States’ Trade Policy Uncertainty on G7 Stock Markets and Implications for Vietnam

Abstract

This study delves into the effect of trade policy uncertainty (TPU) on stock market fundamentals amidst the growing interconnectedness among G7 economies. Utilizing a time-varying parametric vector autoregression (TVP-VAR) framework, the study encompasses the stock returns of all seven countries, unveiling moderate interdependence between variables within the pairwise network. The findings highlight that the US, UK, Italy, and Japan act as net transmitters of shocks, whereas France, Germany, and Canada function as net recipients. Furthermore, the study confirms the presence of a dynamic spillover effect among G7 stock markets over time and identifies a negative impact of US trade policy uncertainty on these markets, underscoring the necessity for policymakers and investors in developed countries to vigilantly monitor  financial market conditions alongside trade and economic policies. These insights offer guidance on managing similar challenges within interconnected global for Vietnam and other emerging markets, which is essential for ensuring a more stable and predictable trading environment amidst the prevailing global economic uncertainties.