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Limited U.S.-China Trade Deal Has Markets Riding High As CRE Shrugs

U.S. President Donald Trump and Chinese President Xi Jinping meet at a G20 summit in Buenos Aires, Argentina in December 2018.

The global economy seems to be breathing a sigh of relief after the U.S. and China finally took a step toward reconciling their trade war.

On Dec. 14, President Donald Trump announced that he and Chinese President Xi Jinping had agreed to a deal. Under the terms of the deal, the U.S. would cancel tariffs set to take effect on $168B worth of Chinese imports in exchange for a pledge from China to buy $32B more in agricultural products from U.S. farmers than it had in the previous two years, The Wall Street Journal reports.

Trump also agreed to halve the rate of the tariff that was applied to $120B worth of Chinese imports on Sept. 1, with the 25% tariff imposed on the first three rounds of imports in the spring left untouched for now, the WSJ reports. Chinese purchasing of U.S. products is expected to total $200B over the next two years.

The deal is the first tangible progress after months of negotiations, though the two sides already seem to disagree on just how much progress was made.

No official details of the deal were released, but Chinese negotiators claimed in a press conference that the U.S. had agreed in principle to scheduled decreases of the remaining tariffs. That was denied by U.S. trade representative Robert Lighthizer, the WSJ reports. The official "phase one" agreement is scheduled to be signed in January.

The deal reportedly will include a "snapback" provision, a clause stating that the U.S. reserves the right to reinstate all tariffs if it doesn't believe that China is holding up its end of the bargain.

Markets reacted to news of the agreement with a wave of positivity, as the Dow Jones, Nasdaq and S&P 500 all closed on Monday at record highs that they immediately broke again on Tuesday, MarketWatch reports. Key European index Stoxx Europe 600 also hit a record that had stood for four years on Monday, while Chinese manufacturing output and consumer spending accelerated in November, the WSJ reports.

The Federal Reserve responded to the new signs of stability by signaling that it will not increase or decrease interest rates in 2020, the Dallas Morning News reports.

Despite all that good news, the slower-moving real estate market is unlikely to change direction in a significant way, Cushman & Wakefield economists said in a statement reacting to the news.

"CRE leasing fundamentals have held up reasonably well since the trade skirmish first began," the statement read. "Regional variations aside, global office and industrial occupancy levels have remained stable throughout the skirmish ... [but] the trade dispute will continue to create periods of volatility, particularly in the globe’s stock markets."