Fentanyl crisis provided opening for US-China trade talks

Beijing’s outreach to Washington over fentanyl created an opening for a bilateral meeting in Switzerland this weekend.

US Treasury Secretary Scott Bessent, centre, and Commerce Secretary Howard Lutnick look on as Donald Trump speaks in the Oval Office. Picture: AFP.

Beijing’s outreach to Washington over fentanyl created an opening for trade talks between the two nations, according to people in both capitals who are familiar with the matter, paving the way for a bilateral meeting in Switzerland this weekend.

For weeks, the US and China have been looking for ways to walk back from what were essentially tit-for-tat trade embargoes. The Chinese in late April sent the Trump administration questions seeking clarity on how the president wants China to crack down on trafficking of the chemical ingredients used to make fentanyl, the people said. In response, the White House gave Beijing a list of suggestions.

Chinese leader Xi Jinping’s security tsar, Wang Xiaohong, had privately expressed interest in further engaging with Trump officials to address the issue by potentially meeting with them in the US or another country.

The Trump team’s list included a request that Beijing send a strong message to those involved in trafficking the chemicals, known as precursors, according to the people familiar with the matter. Such messages could involve warnings of severe punishment. Precursors produced by Chinese companies, often sold over the internet, flow from China to criminal groups in Mexico and elsewhere that produce fentanyl and traffic it into the US

Now both sides are readying for what will be the first direct talks over trade between senior officials on both sides during President Trump’s second term.

“The United States has been clear about our expectations with regards to stopping the flow of chemical precursors from China to illicit drug producers in Mexico,” National Security Council spokesman James Hewitt said. A White House spokesperson didn’t respond to a request for comment.

Chinese Vice Premier He Lifeng (R) will meet Scott Bessent at the weekend. Picture: AFP.

A positive step

The exchanges on fentanyl have been viewed by both sides as a step toward finding a way out of the hostilities between the world’s two largest economies that have rattled global markets and businesses. Against that backdrop, people familiar with the matter said, Treasury Secretary Scott Bessent and US Trade Representative Jamieson Greer and their Chinese counterpart, Vice Premier He Lifeng, agreed in the past few days to meet in Switzerland late this week.

The meeting comes after Bessent on Sunday told people at a private event at the Peninsula hotel in Beverly Hills, Calif., that his priorities include striking new trade deals with countries in Asia, according to one person there. Bessent told the crowd, which was gathered on the sidelines of the Milken Institute Global Conference, that he has been particularly impressed with Indonesia’s trade framework, without providing further details, the person added.

Trump’s initial moves to impose fresh levies on Chinese goods have led to a near-breakdown in US-China relations. Trump has placed 145 per cent total tariffs on Beijing, which in turn slapped 125 per cent tariffs on American exports to China. Markets worldwide surged Wednesday following the announcement of talks in Switzerland.

Getting in Trump’s ear

Chinese officials had spent months trying to get through to Trump’s inner circle, but to no avail. Then in the past couple of weeks, Trump and his cabinet members spoke publicly about having active conversations with the Chinese side – assertions that Beijing disputed until late last week.

In a first sign of softening, China’s Commerce Ministry said Friday that Beijing was evaluating comments and messages from US officials that “expressed their willingness to negotiate with China on tariffs.” He, the vice premier who acts as Xi’s economic right-hand man, was already scheduled to be in Switzerland from Friday through Monday before committing to meet with Bessent and Greer, according to people who consult with Chinese officials. He, pronounced like “huh,” will then visit France as part of Beijing’s effort to court Europe amid its strained relations with Washington.

The developments coincided with the swearing-in Wednesday of former Republican Sen. David Perdue as US ambassador to China. A self-professed China watcher with extensive corporate experience in Asia, Perdue had been a vocal Trump ally in the Senate and supported efforts to counter perceived military and economic threats from Beijing. It wasn’t clear if he would travel to Switzerland for the talks.

Asked about his expectations for the meetings, Trump said Wednesday, “We’ll see,” and referred to the substantial trade deficit with China. He said he wasn’t willing to reduce tariffs to spur negotiations with Beijing. Trump also said he wanted Perdue to promote stability in the Indo-Pacific, stop the flow of fentanyl and “seek fairness and reciprocity for the American worker.” How to de-escalate Both US and Chinese officials have indicated that the key objective for the meeting in Switzerland is to de-escalate tensions that have led bilateral trade to essentially dry up, increasing inflationary pressure in the US and threatening to plunge China into a deep recession.

Bessent in recent days has described the tariff levels imposed since Trump took office as unsustainable. Commerce Secretary Howard Lutnick said in a recent interview with CNBC that Bessent was planning to deal directly with China while he would focus on dozens of other countries.

Some White House officials are hoping the talks in Switzerland could lead to the beginning of the end of what they have described as a “total trade embargo” between the two countries, according to an administration official. It is unclear, however, how widespread that sentiment is among Trump’s aides. Notably, Peter Navarro, Trump’s senior trade adviser, won’t attend the coming talks in Switzerland.

Fentanyl is directly tied to some of Trump’s tariffs, but not all of them. Soon after starting his second term, Trump hit China with 20 per cent tariffs over its role in a drug-overdose crisis that kills tens of thousands of Americans every year. Beijing refused to engage, with Chinese officials arguing that the US was using the fentanyl issue as a pretext for its trade assault on China.

That posture turned out to be a miscalculation by the Xi leadership. Since then, Trump has raised US import duties on Chinese goods to 145 per cent. Those steeper US levies came after the president announced his so-called reciprocal tariff regime on many nations, seeking to rebalance global trade to more favourable terms for the US

The Trump administration has considered slashing the 145 per cent tariffs – in some cases by more than half – in a bid to de-escalate tensions with Beijing. Administration officials also have said the US wouldn’t act unilaterally and would need to see some action from Beijing.

“It’s encouraging progress,” said Ting Lu, chief China economist at Nomura, referring to the coming meeting in Switzerland. “But markets might need to lower their expectations on the pace for reaching a real deal for slashing the tariffs.”

The Wall Street Journal