US-China Tariff Talks on Horizon Amid Potential Reprieve

US President Donald Trump has announced plans for his administration to engage in discussions with China, hinting at a possible postponement of a 10% tariff scheduled to take effect after his recent delay of levies on Canada and Mexico.

Trump stated that talks with China would occur "probably over the next 24 hours" during a press conference in Washington on Monday. During the weekend, he had declared that tariffs on China would be implemented 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 emphasized.

Responding to the news, the Hang Seng China Enterprises Index, which tracks Chinese stocks traded in Hong Kong, surged by 4% on Tuesday. The offshore yuan also appreciated by nearly 1%, trading around 7.31 per dollar. Onshore markets will resume operations on Wednesday following the Chinese New Year break.

White House Press Secretary Karoline Leavitt informed Fox News that a phone call is scheduled between Trump and Chinese President Xi Jinping to address "illegal Chinese fentanyl that is killing tens of thousands of Americans every single year." She highlighted Trump's firm stance on the issue, adding that many tariffs imposed during his first term remain in effect.

Attention has shifted to China, the world's second-largest economy, after Trump reached last-minute agreements with Mexico and Canada to postpone 25% tariffs in exchange for stricter measures to combat migration and drug trafficking at the border. A deal involving the ownership structure of TikTok, the Chinese-owned app, is also likely to be on the agenda for any potential call between the leaders.

Trump expressed his enthusiasm for TikTok on his Truth Social platform, stating: "GREAT INTEREST IN TIKTOK!" He emphasized the potential benefits for China and all parties involved. The former president has granted ByteDance Ltd.'s controversial social media app 75 days to secure a US partner to continue operating in the country.

China's Response and Potential Countermeasures

China's initial reaction to Trump's tariff announcement during the Lunar New Year holiday was relatively muted. The Chinese Commerce Ministry issued a statement expressing strong "dissatisfaction" and vowed unspecified "corresponding countermeasures," while indicating that China would lodge a complaint with the World Trade Organization.

In the past, Beijing has typically retaliated only after tariffs were officially implemented. However, the economic climate in China has deteriorated, and it exports fewer products directly to the US, which could influence their response this time. Additionally, China possesses more tools to counterattack, including laws that grant Beijing greater control over domestic business deals for national security reasons.

Trump's recent order calls on China to leverage its surveillance network to disrupt criminal organizations facilitating illicit drug trafficking. The exact implementation of this request was not specified, leaving Xi without a clear path to avoid tariffs, particularly since Beijing has already pledged to crack down on domestic chemical companies involved in the production of deadly synthetic opioids.

"China can do a lot of things on the fentanyl issue to make President Trump happy," said John Gong, a professor at the University of International Business and Economics in Beijing who has consulted for the Chinese 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 collaborated on fentanyl issues through initiatives such as a counter-narcotics working group. The previous year, the two governments agreed to resume cooperation on curbing the flow of synthetic opioids and their precursors into the US.

Trump and Xi last communicated before the US president's second inauguration, discussing trade, fentanyl, and TikTok. Trump characterized that conversation as "very good," but subsequently imposed tariffs on China. Chinese state media has questioned the rationale behind the tariffs, suggesting that linking fentanyl and trade issues will only hinder efforts to address the problem.