United States President Donald Trump announced a significant trade breakthrough with his Chinese counterpart, President Xi Jinping, on Thursday.
Following their first face-to-face talks since 2019 in Busan, South Korea, the leaders agreed to trim tariffs on China. In return, Beijing committed to major steps on illicit fentanyl, agricultural purchases, and rare earths exports.
Tariffs Reduced in Exchange for Fentanyl Action
The core of the deal involves a reduction in tariffs on Chinese imports. These tariffs will be cut to 47% from 57%. This adjustment is accomplished by halving the rate of tariffs related to trade in fentanyl precursor drugs, bringing that specific rate down to 10%.
In a critical concession, President Xi promised robust efforts to curb the flow of fentanyl. This deadly synthetic opioid is the leading cause of American overdose deaths. President Trump said Xi will work “very hard to stop the flow” of the drug.
Rare Earths Curbs Paused and Agricultural Trade Expanded
China also agreed to temporarily halt its recently announced export controls on rare earths. These elements are essential components in vehicles, aircraft, and defense weapons. The control of these resources provided Beijing with significant leverage.
China’s Commerce Ministry confirmed this pause will last for one year. Furthermore, the two sides reached a consensus on boosting agricultural trade, which includes China resuming purchases of US soybeans.
They also committed to resolving issues surrounding the short video app, TikTok, which the US wants to bring under American ownership.
Market Reaction and Broader Context
President Trump hailed the productive talks, rating them a “12 out of 10.” This meeting marked the end of a rapid Asia tour where he also promoted trade progress with South Korea and Japan.
Despite the positive presidential assessment, the reaction from global stock markets was subdued. Major Asian indexes showed mixed results, and US soybean futures were weaker. This cautious response suggests analysts view the deal as a fragile truce, with underlying core trade issues still unresolved.
The leaders agreed on several steps that restore relations to a status similar to before a major escalation this spring:
- Pausing tit-for-tat port fees on shipping.
- China will begin purchasing US energy, potentially tied to a large Alaskan LNG pipeline project.
Key Issues Left Undiscussed
Several highly contentious subjects were intentionally kept off the agenda, according to President Trump:
- The discussion did not include Nvidia’s advanced Blackwell chip, affecting the firm’s hopes in China’s AI market.
- The democratic island of Taiwan, a sensitive issue claimed by China, was also not raised.
However, just before the meeting, President Trump had ordered the US military to resume nuclear weapons testing after a 33-year hiatus, citing the growing arsenals of China and Russia. China’s foreign ministry later expressed hope that the US would maintain the testing moratorium.
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