We employ difference-in-differences (DiD) event studies to assess the impact of Trump’s “Liberation Day” tariff announcement on sovereign bond spreads and yields in emerging markets (EMs). We consider a largely unexplored question: how do trade policy shocks affect the cost of EM sovereign borrowing? Using daily data surrounding the tariff announcement, we find that countries with high exposure to U.S. trade paradoxically experienced smaller increases in spreads, while those with low economic complexity and high political and economic risk faced substantially higher financing costs. These findings underscore the importance of country-specific risk factors in shaping financial responses to tariff shocks. JEL Codes: F13, F34, F65, G15

Moderator: Cameron Ballard-Rosa

No paper PDF