Trade Framework Emerges for the U.S. and China

SPEAKER_1 (0:00)

This episode is sponsored by Morgan Stanley's Thoughts on the Market. Today's financial markets move fast. Morgan Stanley moves faster with their daily podcast Thoughts on the Market. Thoughts on the Market covers daily trends across the global investment landscape with actionable insights from Morgan Stanley's leading economists and strategists. And with most episodes under five minutes long, staying informed has never been easier. Listen and subscribe to Thoughts on the Market wherever you get your podcasts.

Alex Ossola (0:33)

OpenAI is now a for-profit company opening the door for more fundraising and a possible IPO.

Keach Hagey (0:40)

This is something investors were really, really hungry for and were sort of making some of their fundraising continue upon them being able to do.

Alex Ossola (0:46)

Plus, Texas is suing the company that makes Tylenol, alleging that it hid autism risks. And Mexico gets drawn into the Trump administration's campaign against transnational criminal groups. It's Tuesday, October 28th. I'm Alex Ossola for the Wall Street Journal. This is the PM Edition of What's News, the top headlines and business stories that move the world today.

We're exclusively reporting that the US would roll back some tariffs on China if Beijing cracks down on the export of chemicals that produce fentanyl under a trade framework that President Trump and Chinese leader Xi Jinping are set to discuss Thursday. That's according to people familiar with the talks. The expected agreements are subject to change and dependent on the meeting of the two leaders. WSJ trade and economic policy reporter Gavin Bade joins me now with more. Gavin, what do we know about this deal as it exists right now?

Gavin Bade (1:44)

Broad strokes mostly and not many details. We're looking at a reduction of 10% in the tariffs that the US has applied to China. So as a reminder, Trump put 20% tariffs on China in response to its role in the fentanyl trade. We would see him reduce those tariffs by half. And what that would do is bring average US tariffs on China from around 55% down to 45%. So we're not talking about a huge difference in the overall tariff rate. But there is some movement here. And importantly, it makes a difference with how competitive Chinese goods are compared to others in the region and other trading partners. So a significant move there if it does pan out from the US side.

Alex Ossola (2:30)

What does this mean for other topics on the table between the US and China like rare earths and soybeans?

Gavin Bade (2:36)

So we do expect some purchase agreements from the Chinese government on soybeans and other agricultural goods still waiting to suss out the details on those. And then the other big question is these export controls on rare earth minerals from China and the retaliatory export controls that we've put in place from the US side. The broad understanding here is there would be a pause in a lot of these that the Chinese would delay implementation of their export control regime for about a year. But the devil is going to be in the details there. There's still a lot of uncertainty and still a lot of discussions happening between the sides about exactly which provisions would be included, how long they would be paused, and how you would actually enforce these things and make them a lasting agreement.

Alex Ossola (3:22)

The relationship between the US and China has been kind of tense leading up to this meeting. I mean, there was a question about whether the summit would even happen. What does that show us about where this relationship stands now? Does having a framework like this, even if the details don't all pan out, lower the temperature between the two countries?

Gavin Bade (3:40)

It lowers the temperature, but we're not at cool heads quite yet. We still will have much higher tariffs now than we did on China in the start of Trump's second term. It's a positive indication for U.S.-China relations. It shows that both countries really need a little relief from this trade war right now for their economies for different reasons. These things can flare up at any time as we've seen. The real test is going to be, can we find a framework that has more shelf-life than the agreements of earlier this year?

Alex Ossola (4:11)

That was WSJ Reporter Gavin Bade. Thanks, Gavin.

Gavin Bade (4:14)

Thanks, Alex.

Alex Ossola (4:18)

President Trump has had a few stops on his Asia tour before going to meet Xi in South Korea. Today he and Japanese Prime Minister Suneo Takeuchi visited the USS George Washington, an aircraft carrier docked near Tokyo. In an address given there, the two leaders pledged to usher in a new era of cooperation on security and trade, reinvigorating an alliance that Trump described as the foundation of peace in the Pacific. Trump said that the Japanese Prime Minister told him that Toyota would be investing some $10 billion in US auto plants. Toyota didn't immediately respond to a request for comment. Separately, Defense Secretary Pete Hegseth said today that the US carried out three new lethal strikes on four vessels allegedly operated by drug smugglers in the Eastern Pacific yesterday. For the first time, drawing Mexico's military into President Trump's expanding campaign against transnational criminal groups. Hegseth wrote in a social media post that, in total, 14 alleged narco-terrorists were killed in the three strikes, which left one survivor. Mexico's Navy said it hasn't found the survivor.