U.S.-China Trade War Update

Kevin Thorpe • 12/16/2019
This Instant Insight covers the suspension of December 15 tariffs and the Phase One deal of the U.S. - China trade agreement.
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.

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