US imports from China fell by around 15% year on year in the first quarter of 2019 while imports from a group of eight other Asian economies – Bangladesh, India, Indonesia, Malaysia, South Korea, Taiwan, Thailand and Vietnam – grew by more than 16%.

The initial round of tariffs imposed by the US government on China imports earlier this year has started to make significant and demonstrable impacts on global trade, according to analysis released by PwC today.

The July edition of PwC’s Global Economy Watch highlighted that US imports from China fell by around 15% year on year in the first quarter of 2019.

This fall has created opportunities for other regional trading partners, with imports to the US from a group of eight other Asian economies – Bangladesh, India, Indonesia, Malaysia, South Korea, Taiwan, Thailand and Vietnam –growing by more than 16%.

Mike Jakeman, senior economist at PwC UK, says,

‘Economics can sometimes lag behind politics, but we are now seeing hard economic data of the impact of US-China tensions. This has benefitted other economies in the region: if this trend continues it will contribute to faster economic growth in Vietnam, South Korea and Taiwan in particular.

‘Yet if your goal is to primarily tackle trade imbalances, then bilateral tariffs are an imperfect tool: import substitution can simply re-create the problem elsewhere. So, as a result of Vietnam becoming more competitive than China, the US’s trade deficit with Vietnam stood at $13.5bn in the first quarter, compared to $9.3bn in the same quarter a year ago.’

The July edition of Global Economy Watch also evaluates concerns about the risk of another global recession, as trade tensions impact on business sentiment and demand for exports.

Mike Jakeman says,

‘Certainly, the outlook for the world’s biggest economies is less bright than it was 18 months ago.

'In early 2018 we witnessed the fastest and most synchronised growth since before the global financial crisis. Since then, the deepening of the trade conflict between the US and China, a series of stumbles in Europe and further struggles in slow-growing emerging markets have transformed sentiment among businesses and policymakers.

‘However, slower growth in 2019 in each of the crucial markets of the US, China and the Eurozone is to be expected. The US benefited from a one-off tax cut in 2018. The Chinese government continues to cool its economy very gradually, while the Eurozone is correcting after a couple of years of above-trend growth in 2016-17. That these three economies have cooled simultaneously has been alarming, but fundamentals remain strong.’

Growing energy efficiency offers opportunity for future

In a special report on global energy, PwC has also found that the world economy is using energy much more efficiently in the creation of economic growth. In 1990 it required around 181kg of oil equivalent to produce $1,000 of global GDP in PPP terms. In 2015, it needed 123kg, an improvement in efficiency of more than one-third.

We think this trend has further to run, which means that $1,000 of GDP could be generated by 78kg of oil equivalent by 2040. Becoming more energy efficient is crucial in limiting climate change, while also ensuring that the global economy continues to grow and the world’s population becomes more prosperous.

The report identifies the two drivers of the trend as structural economic change and technological progress. It examines the impact of both drivers across the 20 countries who have experienced the largest improvement in energy intensity since 1990.

Mike Jakeman says,

‘Our analysis suggests that we have made significant strides in raising our energy efficiency over the past 30 years, and our projections for the next 20 suggest that there is still room for major improvement.

‘This is a positive story for the global economy, as it suggests that governments and businesses can continue to pursue climate change policies that limit energy consumption without eliminating economic growth.’

Contact us: David Bowden, Global Communications Manager, United Kingdom, PwC United Kingdom