Supply Lines: Trump Raises Possibility of China Tariffs Reprieve After Mexico, Canada Delays

WASHINGTON, Feb. 6 (Bloomberg) -- US President Donald Trump has indicated that his administration plans to engage in discussions with China, raising the prospect of a potential reprieve from a 10% tariff scheduled to take effect imminently, following similar moves to delay levies on Canada and Mexico.

In remarks to reporters in Washington on Monday, Trump stated that talks with China would likely occur "over the next 24 hours." Over the weekend, he had announced that tariffs on Chinese goods would take effect at 12:01 a.m. on Tuesday.

"If we can't make a deal with China, then the tariffs will be very, very substantial," Trump said.

Hong Kong's Hang Seng China Enterprises Index, which tracks Chinese stocks, surged as much as 4% on Tuesday. The offshore yuan rallied nearly 1% from Monday's low, trading around 7.31 per dollar. Mainland China's markets remain closed for the Lunar New Year holiday and will reopen on Wednesday.

White House Press Secretary Karoline Leavitt subsequently disclosed to Fox News that plans are in place for Trump to engage with Chinese President Xi Jinping regarding "illegal Chinese fentanyl that is killing tens of thousands of Americans every single year."

"The president has made it very clear to China that we are not going to tolerate that," Leavitt stated. "And I would also add that many of President Trump's tariffs from the first term are still in effect."

Attention has shifted to the world's second-largest economy after Trump reached last-minute agreements with Mexico and Canada to postpone 25% tariffs in exchange for stricter border controls on migration and drug trafficking.

For Beijing, a deal to resolve ownership of the Chinese-owned app TikTok may also be part of the agenda for any leadership call. "GREAT INTEREST IN TIKTOK!" Trump posted on his Truth Social platform on Monday evening. "Would be wonderful for China, and all concerned."

The Republican has given ByteDance Ltd.'s social media app, which has faced national security concerns, 75 days to find a US partner to continue operating in the country.

China's response to Trump's initial tariff announcement, made amidst the Lunar New Year holiday, was relatively subdued. The Chinese Commerce Ministry issued a statement expressing strong "dissatisfaction" and vowing unspecified "corresponding countermeasures," while indicating that China would file a complaint with the World Trade Organization.

However, given the economy's current weakness and China's reduced direct exports to the US, it may not adhere to the same approach this time around. Additionally, China has more retaliatory options available under its current laws.

Trump's order over the weekend urged China to utilize its extensive surveillance network to combat criminal organizations involved in drug trafficking. Specific details were not provided, leaving Xi without an apparent means to avoid the tariffs, particularly since Beijing has already committed to cracking down on domestic chemical companies producing the deadly synthetic opioid.

"On the fentanyl issue, China can do a lot of things to make President Trump happy. That's a no-brainer to me," said John Gong, a professor at the University of International Business and Economics in Beijing who has consulted for China's Commerce Ministry. "Compared to a 10% tariff on Chinese exports to the United States, even the entire extermination of the fentanyl industry in China is totally worth it."

In recent years, China and the US have cooperated on fentanyl issues, including through a joint counter-narcotics working group established in January 2024. The previous year, the governments agreed to resume collaboration on curbing synthetic opioid trafficking and its precursors into the US, with the Biden administration lifting sanctions on a Chinese police laboratory as a gesture.

The Biden administration welcomed China's efforts in November, noting that Beijing had shut down online platforms and companies supplying precursor chemicals for synthetic drugs and apprehended individuals involved in illicit trade.

Trump and Xi last spoke prior to the US president's second inauguration, discussing trade, fentanyl, and TikTok in a phone call. Trump described the conversation as "very good," but days later implemented tariffs on China as he had threatened.

Chinese state media has challenged Trump's rationale for the tariffs, cautioning that linking fentanyl and trade would hinder efforts to address the issue. "What's the logical relationship between fentanyl and tariffs?" China Central Television stated in an article on Monday evening. "The world can't solve this ridiculous question."

--With assistance from Josh Xiao, Tian Chen, Abhishek Vishnoi, Rebecca Choong Wilkins, and David Ingles.