AEMPS

A Study on the Dynamic Impact of Trade Policy Uncertainty on China's Financial Markets — An Empirical Analysis Based on Multiple Breakpoint VAR Models

Author

Zihan Gao * 1

1 Longjiang Bank

Corresponding Author

Zihan Gao

Keywords

trade policy uncertainty, financial market, vector autoregression, multiple breaks, impulse response

Abstract

Based on monthly data spanning June 2015 to June 2025, this paper constructs a VAR model that includes the stock market (SSE Composite Index return), foreign exchange market (RMB exchange rate movement), trade policy uncertainty (TPU), U.S. Federal Funds Rate and China's GDP growth rate to systematically examine the dynamic impact of trade policy uncertainty on China's financial market in the context of the U.S.-China trade friction mechanism. The study employs multiple breakpoint analyses (signing of the first-stage agreement in January 2020) and robustness tests and synthesizes the Granger causality test, impulse response analysis and variance decomposition. Research reveals that TPU serves as a Granger cause in China's financial markets. Its shocks exert a significant negative impact on the stock market, manifesting as "short-term amplification and long-term convergence" following escalations in trade friction. TPU's explanatory power over financial market volatility increases with friction intensification (boosting stock market volatility by approximately 8% on average and contributing up to 12% to exchange rate fluctuations). Notably, the transmission mechanism shows pronounced phase heterogeneity.

Citation

Zihan Gao. A Study on the Dynamic Impact of Trade Policy Uncertainty on China's Financial Markets — An Empirical Analysis Based on Multiple Breakpoint VAR Models. AEMPS (2026) Vol. 264: 28-35. DOI: 10.54254/2754-1169/2026.BJ32218.

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