The Tweet is Mightier than the Pen - Social Media Posts, Executive Orders, and Uncertainty

Abstract

We quantify the effects of US trade policy uncertainty (TPU) on its major European partners, calibrating the TPU shock to the observed jump in Q1 2025. We contrast these estimates with a tariff hike in an international general equilibrium model with production networks and find that for the European trading partners, the uncertainty is quantitatively more important than tariffs, which could be dampened by substitution and reallocation effects.

Keywords: US trade policy uncertainty, European trading partners, production networks, Bayesian VAR