Innovations in Trade Relations with China from Trump

Important Developments in Trade Relations Between Two Superpowers

President Donald Trump announced on Thursday that the U.S. would halve tariffs related to fentanyl on Chinese goods. This move coincides with China stepping back from its restrictions on rare earth mineral exports and stands out as part of efforts to reset relations.

Trump shared details of a limited agreement following a summit with Chinese President Xi Jinping in South Korea. Key topics within the agreement include increased purchases of soybeans from the U.S., further actions related to fentanyl, the suspension of certain shipping fees, and Trump’s planned visit to China next April.

In his statements, Trump indicated that more details would be forthcoming soon and highlighted the productive nature of the meeting, asserting that a formal agreement would be signed "very soon." The outlined conditions have the potential to provide a degree of stability to the markets concerning the relationship between the two major economies.

According to an analysis by Capital Economics, while unresolved disputes and a broad decoupling effort may persist, the reduction of large tariffs alleviates a significant short-term risk.

The summit held in Busan was recorded as Trump’s first face-to-face meeting of his second term and lasted about two hours. A clear focal point for the markets was tariff reductions. Trump announced that the existing 20% tariff rate on China regarding fentanyl would be cut to 10% "to be enacted immediately."

The U.S. maintains a broad range of tariffs against China, extending from a 20% rate on fentanyl to "relative" tariffs of 34% and sector-specific tariffs. The Peterson Institute estimates that the average tariff rate on U.S. imports from China was about 57.6% before the meeting. Trump indicated that the new general rate following the changes is around 47%.

Additionally, the topic of rare earth minerals drew attention. According to some estimates, China controls approximately 90% of the global market for these valuable metals. Recently, China’s export restrictions caused a stir. With the new agreement, Trump added that “the flow of these resources will continue for at least a year.”

The Chinese Ministry of Commerce confirmed some terms, such as the decline in fentanyl tariffs. Chinese state media emphasized that the meeting would provide an opportunity for both parties to establish strong "bilateral ties" between the two countries.

Unresolved topics from the meeting included semiconductors. Trump expressed that discussions about future access to the country for China and Nvidia Corporation (NVDA), a chip manufacturer, would take place between them. He also noted that discussions regarding a deal involving TikTok are ongoing.

Trump mentioned that little progress had been made regarding relations with Russia, and they decided to work together in that regard, but due to China's long-standing purchases of Russian oil, making further advancements was challenging. Additionally, Trump remarked that the "Taiwan" issue did not come up.

Among the concrete developments, Secretary of Agriculture Brooke Rollins confirmed before the meeting that China had resumed its purchases of American soybeans. This was a priority item on Trump’s agenda, as U.S. soybean producers suffered significant losses due to China halting its purchases.

On social media, Trump shared that China's new energy purchases of oil and gas from Alaska could represent "a very large-scale transaction."

Louise Loo, Head of Asia Economics at Oxford Economics, described the developments in U.S.-China trade talks as "definitely a positive step," stating that it "lays the foundation for deeper and more predictable interaction by 2026." However, she cautioned about the high likelihood of policy missteps and mutual misunderstandings, remarking that "this détente is fragile."

In conclusion, following this summit, it appears that stability has been established in the relations between the U.S. and China. Trump, stating "we have an agreement," reminded that "we will renegotiate this agreement every year."