On December 13 2019, the U.S. and China reached a new trade agreement—referred to as the Phase 1 deal—which they hope paves the way for a larger deal down the road.
WHAT HAPPENED - HIGHLIGHTS (ACCORDING TO U.S. OFFICIALS)
- U.S. has agreed to suspend the December 15 tariffs that would have impacted ~$160 billion of Chinese-made goods.
- U.S. has agreed to cut the rate on existing tariffs from September to 7.5% from 15%.
- China has agreed to purchase $200 billion of additional U.S. goods over the next two years.
WHAT IT MEANS FOR THE ECONOMY
- The deal does not address the thornier issues such as technology transfers, intellectual property and a host of other regulations.
Stock markets generally reacted positively to the truce. However, the deal does not end the uncertainty as it includes a ‘snapback’ provision: if the Trump Administration views that China is not making good on the terms of the new deal, tariffs could very quickly ramp back up.
It is also important to note that while some tariffs have been halted or reduced, many others remain in effect.
WHAT IT MEANS FOR CRE
- By general consent, the trade dispute has negatively impacted certain aspects of the global economy and will continue to do so. The IMF estimates that the existing tariffs and trade-related uncertainty will shave 0.8% off global GDP growth by 2020.
- Notably, since the trade war intensified, global trade flows have slowed, business confidence has deteriorated, and the global manufacturing sector has also arguably slipped into recession.
- CRE leasing fundamentals have held up reasonably well since the trade skirmish first began.
- However, demand for industrial space in certain U.S. West Coast markets, and for office and industrial in certain Chinese cities was slower. And export-oriented economies in general lagged behind other markets in 2019.