You must have heard of the US-China trade war over the past few months. This is one of the major factors which has the potential to impact the world economic growth.

The simple reason why the US – China trade war is so important is that these are two of the biggest economies in the world. The combined trade activity between these 2 totals to trillions of dollars, a significant portion of the total global trade.

Till date the US has applied exclusive tariffs to China worth: US $250 billion

Till date China has applied exclusive tariffs to USA worth: US $110 billion

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At present, neither Chinese President Xi Jinping nor US President Trump is looking to back down. In this scenario, China’s Ministry of Commerce believes that the dispute could lead to “the largest trade war in economic history to date”.

The impact on the trade war on the GDP of global economy in general and these 2 countries in particular can be severe.

We see that the world trade could be impacted by as much as 2%. Similarly, two of the world’s largest economies could experience a great fall in their trade numbers.

However, it sounds a note of caution on two fronts.

First, as the report explains, that projection is based on a number of assumptions about the global response to the pandemic. The availability of vaccines and continued efforts on the part of national and regional governmental bodies to provide financial support where needed will greatly impact the recovery.

On that, PwC expects more prolonged lockdowns, particularly in northern hemisphere countries which could force economic output in some economies to contract in the early part of 2021.

Secondly, report writers stress, the potential 5% global growth will not be distributed evenly. Growth will be noticeably higher in some places and absent in others. China, PwC believes, is poised to do particularly well as economically, it is already ahead of where it was pre-COVID.

This contrasts with the experience several developed service-based economies are likely to encounter. The UK, France and Spain are “unlikely to recover to their pre-crisis levels by the end of the year”. The same is likely to be the case for economies where the export of capital goods is a major activity – Germany and Japan are two such examples.