Amidst the backdrop of escalating trade tensions, US and Chinese trade negotiators have reportedly reached a preliminary agreement, paving the way for a potential summit between President Donald Trump and his Chinese counterpart, Xi Jinping, to finalize a deal. This development comes as a relief to global markets, which have been rattled by the ongoing trade dispute between the world's two largest economies.
The negotiations, held in Malaysia, focused on several contentious issues, including export controls, fentanyl, and shipping levies. US Treasury Secretary Scott Bessent revealed that Trump's threat of 100% tariffs on Chinese goods has been retracted, and he anticipates China to make substantial soybean purchases and offer a deferral on rare earth controls. However, the US will maintain its export controls on China.
Bessent also hinted at a broader agreement between Trump and Xi, aiming to extend a tariff truce, address the TikTok sale, and ensure the supply of rare earth magnets for advanced product manufacturing. The leaders are also expected to discuss a global peace plan, with Trump seeking Xi's assistance in resolving the Ukraine war.
The positive signals from the negotiations stand in stark contrast to recent weeks, when Beijing's export restrictions and Trump's reciprocal tariff threats threatened a full-scale trade war. The potential deal has already boosted market sentiment, with risk-sensitive currencies and Bitcoin showing strength.
US Trade Representative Jamieson Greer emphasized the importance of avoiding China's rare-earth restrictions, indicating progress towards this goal. Trump himself expressed optimism about reaching a "good deal with China," suggesting additional leader-level meetings in both countries.
However, markets will closely scrutinize the details of the final agreement, given the rapid changes in trade and tariff policies between the US and China over the past year. Chinese trade envoy Li Chenggang suggested a consensus on fentanyl, which could lead to the removal or reduction of a 20% tariff imposed on Beijing to halt the flow of precursor chemicals for the deadly drug.
The agreement's potential impact extends to agricultural trade, with China's recent retaliatory tariffs on US farm goods, including soybeans, causing significant political concern for Trump. The reopening of soybean purchases could provide a significant political win for the US president, especially for rural farmers who form a crucial political base.
The negotiations took place at the Merdeka 118 skyscraper, with Trump meeting Southeast Asian leaders nearby. The Chinese delegation, led by He Lifeng and including Vice Finance Minister Liao Min, engaged in discussions with US Trade Representative Jamieson Greer. This week's meeting between Trump and Xi will be their first face-to-face interaction since Trump's return to the White House, underscoring the importance of direct talks in resolving trade disputes and geopolitical issues.
