In a significant diplomatic development, US and Chinese officials have successfully reached a framework agreement, effectively averting the imposition of a potentially devastating 157% tariff on Chinese goods. This agreement paves the way for a potential trade deal to be discussed between President Donald Trump and Chinese leader Xi Jinping later this week. The announcement marks a promising turn in the ongoing trade tensions between the world's two largest economies, which have seen escalating retaliatory measures in recent weeks. Following this news, both Asia markets and US stock futures responded positively, reflecting investor optimism.
The latest round of trade talks took place in Kuala Lumpur, Malaysia, which is the first stop on Trump's weeklong diplomatic tour across Asia. Shortly after Trump's arrival on Sunday, positive indicators began to emerge from the discussions. Treasury Secretary Scott Bessent, who led the US delegation alongside Trade Representative Jamieson Greer, stated on ABC that they had reached a "substantial framework" for the two leaders' upcoming meeting. He also indicated that the previously threatened 100% tariffs on Chinese imports were "effectively off the table," signaling a potential easing of trade tensions.
All eyes are now on the highly anticipated meeting between President Trump and Xi Jinping, scheduled for Thursday in South Korea. This meeting, which will take place on the sidelines of the Asia-Pacific Economic Cooperation (APEC) CEO summit, is significant as it will be their first face-to-face encounter during Trump's second term. Although Beijing has not confirmed the meeting yet—a common practice for the Chinese government—the recent developments in Malaysia suggest a more constructive atmosphere ahead of this important dialogue.
Trade relations between the US and China deteriorated rapidly in September, particularly after the US expanded its export blacklist to significantly restrict Chinese companies' access to crucial American technology. In response, China tightened its own export controls on rare earth minerals, which are essential for various technologies and for which China holds a near-monopoly in processing. This backdrop led Trump to threaten new 100% tariffs on Chinese imports, originally set to be implemented in November.
While specific details of the framework agreement remain undisclosed, Bessent mentioned on NBC that the US expects to receive "some kind of deferral" on rare-earth export controls. He expressed optimism that this framework will enable Trump and Xi to have a "very productive meeting." Additionally, Bessent revealed that China is poised to make "substantial" purchases of American soybeans—a crucial development for soybean farmers in states like Illinois, Iowa, Minnesota, and Indiana, who have been struggling due to a lack of purchase orders from China, historically their largest buyer.
In terms of drug policy, Bessent noted that both nations reached an initial agreement on enhancing cooperation to combat the flow of precursor chemicals for fentanyl, an illegal drug that has been a significant issue in the US. Furthermore, the two sides have finalized a deal regarding TikTok, the popular short video app, which requires its US assets to be sold to American buyers in compliance with US law. Bessent confirmed that all details of this transaction have been finalized and are now ready for the leaders to conclude.
Following the discussions, Chinese state-run media Xinhua reported that US and Chinese trade negotiators have achieved a "preliminary consensus" on addressing mutual concerns. Li Chenggang, China's chief trade negotiator, emphasized that the two sides engaged in extensive discussions covering various issues, including US special port charges on Chinese-built vessels, the extension of the trade truce, and cooperation on illegal drug enforcement and export controls. Li remarked that the recent "shocks and fluctuations" in trade relations were "not what China wanted to see," indicating a desire for stable and constructive trade interactions moving forward.
In conclusion, while challenges remain, the progress made in these negotiations indicates a potential path toward a more stable economic relationship between the US and China, which could have profound implications for global markets.
