The long road to a US-China trade pact

Weeks earlier, President Trump had added an additional 20% in tariffs on China over what he said was its role in the fentanyl trade. The Montana senator and close Trump ally, who lived in China and Hong Kong for six years in the 1990s as an executive for Procter & Gamble, saw an opening to smooth things over.

During the visit, Daines (R., Mont.) said he and Chinese Premier Li Qiang hammered out the outlines of a deal that would see the U.S. reduce its fentanyl tariffs on China in return for Beijing’s actions to cut off the shipment of fentanyl precursors—ingredients to make the drug—to the U.S.

The Trump administration was for months reluctant to reduce the fentanyl-based tariffs, despite several meetings with Chinese officials in Europe that brought reductions in other levies and temporary pauses in export controls from both economies.

The U.S. on Thursday finally accepted China’s offer, agreeing to reduce fentanyl-related tariffs from 20% to 10% in return for Beijing’s assurances that it would reduce shipments of fentanyl precursors. China also agreed to buy U.S. soybeans and pause export controls aimed at U.S. industries.

“I was framing that negotiation back in March on the fentanyl precursors with the premier, and I had lunch with Scott Bessent last week and suggested that soybeans and fentanyl precursors…could be takeaways from that meeting" in South Korea with China, Daines said in an interview, referring to the Treasury secretary.

The Daines meeting in China eventually helped pave the way for a temporary detente between Washington and Beijing. The on-again, off-again trade war between the U.S. and China this year has been felt around the world. The trade in goods between the two countries was $582 billion in 2024.

Daines and others close to the Trump administration said a confluence of factors came together in recent weeks to make the president and his team amenable to a deal with the Chinese government.

Beijing had exerted leverage by constraining the export of rare-earth minerals crucial for U.S. industries; ending purchases of America’s soybeans, harming farmers—a key part of Trump’s political base—and increasing pressure on the Trump administration to cut a deal.

Trump’s economic team built goodwill with Chinese officials in a series of meetings in Europe throughout the year, increasing confidence for a final encounter. And, perhaps most important, Trump and Chinese leader Xi Jinping planned to meet face-to-face in South Korea, giving an incentive to reach a deal they could announce after the encounter.

“They’ve lined up enough stuff to get a critical mass to get a deal, and then having both leaders there in South Korea," said Sen. John Hoeven (R., N.D.), who met with Bessent and U.S. Trade Representative Jamieson Greer before they departed for Asia.

The Treasury Department and Greer’s office didn’t respond to requests for comment.

While the administration hasn’t released details on the deal with China, comments from both sides in the hours after the meeting point to a pause in hostilities rather than a lasting truce. As part of the agreement, China will suspend its licensing requirements for rare-earth minerals—critical for a variety of U.S. industries, automobiles and defense contractors—for a year. In return, Washington will put on hold new rules that would place more affiliates of Chinese companies on U.S. economic blacklists.

“Now, every year we’ll renegotiate the deal, but I think the deal will go on for a long time, long beyond the year," Trump said.

The agreement represents progress on the fentanyl concern, which appeared impossible for most of the year.

At a May meeting with Chinese officials in Geneva, the U.S. and China agreed mutually to reduce their triple-digit tariffs to a more manageable level, but U.S. officials were clear that they wouldn’t back off on fentanyl-based duties. During the meeting, Bessent picked up a pinch of sugar from the meeting table and told the Chinese delegation that if it were fentanyl, it would be enough to kill a person, The Wall Street Journal previously reported. The message was clear: no deal on fentanyl, at least not at that time.

That U.S. position persisted for months, even as Bessent and Greer met with Chinese officials in Stockholm, where they discussed extending a pause on retaliatory tariffs, and in Madrid, where they talked about the video-sharing app TikTok.

In recent weeks, administration officials started to express optimism that they could come to some sort of deal with the Chinese on several fronts. About two months ago, Hoeven said he met with Bessent to discuss China’s refusal to buy U.S. soybeans, and Bessent predicted that Beijing would relent around the time of the expected meeting between Trump and Xi.

“I talked to Secretary Bessent two months ago, and he said in about eight weeks he thought we’d have sales," Hoeven said in an interview. “He told me that eight weeks ago."

Throughout the negotiations, Chinese officials insisted that the U.S. agree to lower fentanyl tariffs before China would resume purchases of soybeans and other agricultural products.

While China this week booked its first shipments of soybeans for this marketing year, the agreement likely contains a potential loophole. Chinese negotiators again are expected to insist that China will only make such purchases based on “market prices," according to people close to Beijing. This specific language is widely seen as a potential “out" for Beijing, allowing China to bypass U.S. supplies if they aren’t price-competitive.

This is a critical distinction, according to Ken Morrison, a commodities trader focused on China, as U.S. soybeans face a very narrow window of competitiveness before Brazil’s harvest floods the global market.

White House spokesperson Kush Desai said the market-prices commitment was “boilerplate language" and will ensure China pays what the market price is for the soybeans “as opposed to some arbitrary price floor."

Even with a new agreement, U.S. soybean farmers face a significant market reality: China, the world’s top importer of the animal feed and cooking-oil ingredient, in recent years has diversified its imports, a strategy that saw Brazil rapidly expand production and capture a larger share of the Chinese market.

China has largely bypassed the current U.S. harvest in favor of South American supplies. This development leaves American farmers with a narrow window of opportunity, analysts said, to secure sales before Brazil’s anticipated record harvest starting in February undercuts producers in the U.S. and elsewhere.

Write to Gavin Bade at gavin.bade@wsj.com and Lingling Wei at Lingling.Wei@wsj.com