US-China Trade Deal Gains Momentum Ahead of Key Leaders' Meet

Negotiators Forge Agreement Amidst Trade Tensions

In a significant development, top trade negotiators from the United States and China have successfully navigated through a series of contentious issues, paving the way for Presidents Donald Trump and Xi Jinping to finalize a landmark trade agreement. This deal aims to alleviate the trade tensions that have been unsettling global markets.

Key Outcomes from Recent Talks

Concluding a two-day round of discussions in Malaysia on Sunday, a Chinese official revealed that both parties have reached a preliminary consensus on several critical topics, including export controls, the opioid fentanyl crisis, and shipping tariffs.

US Treasury Secretary Comments on Tariff Threats

During an interview with CBS News, US Treasury Secretary Scott Bessent indicated that the previously looming threat of 100% tariffs on Chinese imports is now "effectively off the table." He expressed optimism about China making "substantial" purchases of US soybeans and hinted at a potential delay in imposing extensive rare earth export controls. However, Bessent clarified that the US would maintain its existing export controls targeting China.

"So I would anticipate that the threat of the 100% tariffs has diminished, as has the immediate concern about China launching a global export control regime," Bessent explained. He also mentioned to ABC News that he expects China to postpone its rare-earth restrictions for a year for re-evaluation.

Broader Agreement Expected

Bessent hinted at a comprehensive agreement that would extend a truce on tariffs, address TikTok's sale disputes, and ensure a steady flow of rare earth magnets crucial for the manufacturing of advanced technologies, from semiconductors to jet engines. Furthermore, he noted that the two leaders are anticipated to discuss a global peace initiative, with Trump hoping to seek Xi's assistance in resolving the ongoing conflict in Ukraine.

A Shift in Negotiation Dynamics

The positive tone from both sides marks a stark contrast to the recent weeks, characterized by Beijing's announcement of new export restrictions and Trump's retaliatory threats of harsh tariffs, which had raised concerns of a renewed trade war between the world's two largest economies.

Speaking to reporters at the Association of Southeast Asian Nations (ASEAN) summit in Kuala Lumpur, Trump expressed hope for a "good deal with China" and anticipated further leader-level meetings in both the US and China.

"They want to make a deal, and we want to make a deal," he stated, reflecting a mutual desire for progress.

Market Reactions and Future Implications

Despite the encouraging developments, market participants will be monitoring the specifics of the eventual agreement closely, particularly after nearly a year of turbulent shifts in trade and tariff policies between the US and China.

Fentanyl and Shipping Tariffs Under Review

Chinese trade envoy Li Chenggang expressed confidence that a consensus has been reached regarding fentanyl, suggesting that the US might consider lifting or reducing a 20% tariff that was imposed to pressure China into curbing the flow of precursor chemicals for the production of the drug. Additionally, he indicated that the nations would revisit the port service fees the Trump administration had imposed on Chinese vessels, which led to retaliatory tariffs on US-owned vessels.

Despite calling Bessent "unhinged" earlier in the month, Li described the recent talks as intense, acknowledging the firmness of the US stance while also celebrating the progress made. Both nations will now relay the outcomes of these discussions back to their respective leaders ahead of the scheduled summit between Trump and Xi on Thursday.

Li emphasized, "The current turbulences and twists and turns are ones that we do not wish to see," stressing that a stable trade and economic relationship between China and the US is beneficial for both countries as well as the global community.

The Impact of Soybean Purchases

Should the reopening of soybean purchases come to fruition, it could serve as a significant political victory for Trump. China had imposed retaliatory tariffs on US agricultural products in March, essentially closing the door on American soybeans before the harvest season. In the previous year, China imported $13 billion worth of US soybeans, accounting for over 20% of the total US soybean crop.