US and China reach initial consensus on trade deal

Top trade negotiators for the US and China said they have agreed terms on contentious points, paving the way for leaders Donald Trump and Xi Jinping to finalise a deal and ease trade tensions that have rattled global markets.

After two days of talks in Malaysia wrapped up on Sunday, a Chinese official said the two sides had reached a preliminary consensus on topics including export controls, fentanyl and shipping levies.

US Treasury Secretary Scott Bessent, speaking later in an interview with CBS News, said Mr Trump’s threat of 100 per cent tariffs on Chinese goods was “effectively off the table” and he expected the Asian nation to make “substantial” soybean purchases, as well as offer a deferral on sweeping rare earth controls.

The US will not change its export controls directed at China, Mr Bessent added.

“So I would expect that the threat of the 100 per cent has gone away, as has the threat of the immediate imposition of the Chinese initiating a worldwide export control regime,” he said. He told ABC News he believed China would delay its rare-earth restrictions “for a year while they re-examine it”.

Mr Bessent telegraphed a wide-ranging agreement between Mr Trump and Mr Xi that would extend a tariff truce, resolve differences over the sale of TikTok and keep up the flow of rare earth magnets necessary for the production of advanced products, from semiconductors to jet engines. The two leaders are planning to discuss a global peace plan, he said, after Mr Trump said he hoped to enlist Mr Xi’s help in resolving Russia’s war in Ukraine.

The encouraging signals were a marked contrast from recent weeks, when Beijing’s announcement of new export restrictions and Mr Trump’s reciprocal threat of staggering tariffs threatened to plunge the world’s two largest economies back into an all-out trade war.

Mr Trump himself predicted a “good deal with China” as he spoke on the sidelines of the Association of South-east Asian Nations summit in Kuala Lumpur, saying he expected additional leader-level follow-up meetings in China and the US. “They want to make a deal and we want to make a deal,” Mr Trump said.

Still, markets will be closely watching the details of the ultimate agreement, after nearly a year of changes to trade and tariff policies between the US and China.

Chinese trade envoy Li Chenggang indicated his belief that the sides had reached a consensus on fentanyl, suggesting the US might lift or reduce a 20 per cent tariff it had imposed to pressure Beijing to halt the flow of precursor chemicals used to make the deadly drug. He said the nations would also address actions the Trump administration took to impose port service fees on Chinese vessels, which prompted Beijing to place retaliatory levies on ships owned, operated, built or flagged by the US.

Mr Li, whom Mr Bessent called “unhinged” this month, described the talks as intense and the US position as tough, but hailed progress in the discussions. Both sides will now report back to their leaders ahead of a planned summit between Mr Trump and Mr Xi on Thursday.

“The current turbulences and twists and turns are ones that we do not wish to see,” Mr Li said. A stable China-US trade and economic relationship is good for both countries and the rest of the world, he added.

The reopening of soybean purchases, if realised, could provide a significant political win for Mr Trump.

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China imposed retaliatory tariffs on US farm goods in March, effectively shutting the door to American soybeans before the harvest had even begun. The Asian nation last year bought $13 billion of US beans – more than 20 per cent of the entire crop – for animal feed and cooking oil, and the freeze has rocked rural farmers who represent a key political base for the President.

Perhaps more important is resolving the US’s rare-earths tussle with China, which fought back against Mr Trump’s trade offensive earlier this year by cutting off supply of the materials. Although flows were restored in a truce under which tariffs were lowered from levels exceeding 100 per cent, China this month broadened export curbs on the materials after the US had expanded restrictions on Chinese companies.

The negotiations took place at the skyscraper Merdeka 118 as Mr Trump met with South-East Asian leaders at a nearby convention centre, where he brokered a series of framework trade agreements seeking to diversify US trade away from China.

The Chinese delegation was led by Liu He, China’s top economic official, and included Vice Finance Minister Liao Min. US trade representative Jamieson Greer was also part of the talks.

Mr Trump’s talks with Mr Xi this week will be their first face-to-face meeting since his return to the White House. The US leader has said direct talks are the best way to resolve issues, including tariffs, export curbs, agricultural purchases, fentanyl trafficking and geopolitical flashpoints such as Taiwan and the war in Ukraine.

“We’ll be talking about a lot of things,” he said. “I think we have a really good chance of making a very comprehensive deal.”