Inside China's decision to come to the table on Trump tariffs

By Antoni Slodkowski and Laurie Chen

BEIJING (Reuters) - Since U.S. President Donald Trump imposed steep tariffs on China last month, Beijing has responded in kind. On state and social media, it posted images of Mao Zedong, lambasted "imperialists," and sent a message: capitulation to bullies is dangerous, and it wouldn't back down.

But behind closed doors, Chinese officials have grown increasingly alarmed about tariffs' impact on the economy and the risk of isolation as China's trading partners have started negotiating deals with Washington, according to three officials familiar with Beijing's thinking.

These factors, along with outreach by the U.S. and an easing of Trump's rhetoric, persuaded Beijing to send its economic tsar He Lifeng for meetings with U.S. counterparts in Switzerland this weekend, the officials told Reuters.

Re-engagement was complicated by the fractious nature of U.S.-China diplomacy. In particular, Beijing considered a letter the U.S. side sent to Chinese ministries in late April about fentanyl "arrogant," two officials said. Efforts to arrange talks were further impaired by disagreements over which officials should be involved, said one of these people and another official.

China's reasons for deciding to negotiate, Washington's letter on fentanyl, U.S. diplomatic challenges in Beijing, and the early outreach between the two sides are reported by Reuters for the first time, based on interviews with nearly a dozen government officials and experts on both sides. Most of the people were granted anonymity to discuss non-public information. 

China's State Council and ministries of commerce and foreign affairs didn't immediately respond to faxed requests for comment. The White House and State Department also didn't respond to Reuters questions about the lead-up to the Geneva talks.

China's Vice Foreign Minister Hua Chunying said on Friday that China has full confidence in its ability to manage U.S. trade issues, adding that the Trump administration's approach cannot be sustained.

The trade war between the world's two largest economies, combined with Trump's decision last month to impose duties on dozens of other countries, has disrupted supply chains, unsettled financial markets and stoked fears of a sharp downturn in global growth. 

Chinese export restrictions, meanwhile, have squeezed the supply of critical minerals the U.S. needs for weapons, electronics and consumer goods. Trump's approval ratings are falling due to his handling of tariffs and the economy.

The volatile run-up to the Geneva talks underscores the deep mistrust and divergent negotiating styles between the Trump team and China, which could make for protracted and fraught discussions.

"Both sides I think are balancing trying to look tough with not wanting to be responsible for sinking the global economy," said Scott Kennedy, an expert in Chinese business affairs at the Center for Strategic and International Studies in Washington. 

"The Chinese set a high bar for these talks, but it became increasingly clear that the Trump administration wanted to talk, and they couldn't say no forever. So, they've accepted what are probably best seen as pre-negotiations in Geneva."

FROM MINISTER TO TSAR

After Trump's tariff salvo last month, China took a hard line in its public messaging. Beijing posted footage on its official social media feeds of a Chinese MiG-15 fighter shooting down a U.S. jet in the Korean War, with commentary: "China won't kneel down, because we know standing up for ourselves keeps the possibility of cooperation alive, while compromise snuffs it out."

The tone began to shift on April 30, when a state media-affiliated blog said the U.S. had "proactively reached out to China through multiple channels, hoping to discuss tariffs."

CSIS's Kennedy said contacts between Chinese agencies, Beijing's embassy in Washington and the Trump administration had been increasing in frequency in recent weeks. Some in-person interactions took place at the International Monetary Fund and World Bank meetings in late April, including with Treasury Secretary Scott Bessent, which paved the way for the Swiss meeting, said Kennedy.

After Trump's "Liberation Day" tariffs, Chinese Commerce Minister Wang Wentao quietly reached out to his U.S. counterpart, Howard Lutnick, but was rebuffed as not senior enough, according to one official familiar with the exchanges.

Trump has been pushing for direct talks with Chinese President Xi Jinping. But China has rejected that idea as not in keeping with its traditional approach of working out the details first before the leaders sign any deal, according to public statements by both sides.

Another significant factor for China was Trump's public berating of Ukrainian President Volodymyr Zelenskiy in February, said one of the sources, adding that any unscripted hostile interaction between the U.S. and Chinese leaders would represent an unacceptable loss of face for Xi.

As messaging on both sides grew more conciliatory, China decided to put forward its vice premier and Xi confidant He Lifeng, whose direct predecessor struck the "Phase One" trade deal with the U.S. in 2019.

The move satisfied Washington's demands for substantive talks with a senior official with direct access to Xi, but avoided exposing the Chinese leader to potential embarrassment, said one of the sources.

As for the choice of venue, the Swiss foreign ministry said that "during its recent contacts in Washington and Beijing, Switzerland expressed to the U.S. and Chinese authorities its willingness to organize a meeting between the two parties in Geneva." 

ECONOMIC PAIN 

Among the main drivers of Beijing's climb-down were internal signals that Chinese companies were struggling to avoid bankruptcies and to replace the U.S. market, three people familiar with the Chinese government's thinking said.

Some areas feeling immediate impact were furniture and toy makers, as well as textiles, said one of the officials.

U.S. diplomats in China have also been closely monitoring factory closures, strikes, and job losses in the industrial heartland in southern China.

Many analysts have downgraded their 2025 economic growth forecasts for China, and investment bank Nomura has warned the trade war could cost it up to 16 million jobs. China's central bank this week announced fresh monetary stimulus.

One of the officials said Chinese companies were struggling to replace the U.S. market because developing nations cannot buy as many items, and that for many firms this was an existential threat that needed to be resolved in days or weeks.

In addition, Beijing was worried it was left without a place at the negotiating table while its major trading partners, such as Vietnam, India and Japan, began talks with Washington, said two officials familiar with Beijing's thinking. 

In a warning to the countries negotiating with the U.S., China's commerce ministry said in a statement this week that "appeasement cannot bring peace, compromise cannot be respected, and adhering to principled positions and upholding fairness and justice is the right way to safeguard one's own interests."

As part of the push to counter the U.S., China is sending its Premier Li Qiang to Malaysia in late May for a summit with a newly established group of Southeast Asian and Arab nations, two sources told Reuters.

A regional diplomat based in Beijing told Reuters China's message to Southeast Asia was "We will buy stuff from you." 

In Geneva, Beijing appears to have modest expectations. 

Internally, China has downgraded the talks from a higher level to merely a meeting, reflecting its view that the discussions will be mostly about finding out Washington's demands and red lines after weeks of contradictory messages by Trump and other senior U.S. officials, according to a person familiar with the matter. 

Still, one official said China could draw on its extensive toolbox and follow Asian neighbors in offering to buy more American liquefied natural gas. 

On the table may also be purchases of agricultural goods, similar to the 2019 "Phase One" deal during Trump's first term. At the time, Beijing said it would increase purchases of U.S. agricultural products by $32 billion over two years.

While other matters like the U.S.'s axing of the "de minimis" exemption for packages under $800 from China and the sale of TikTok are also likely to play a part in the broader talks, Chinese officials said they do not expect them to play a central role this weekend. 

FENTANYL AND TURMOIL

Even before triggering the broader trade war, Trump imposed a 20% tariff on Chinese goods, saying Beijing wasn't doing enough to counter the flow of chemicals used to produce the deadly drug fentanyl.

One of the moves that complicated the rapprochement, according to two officials, was a letter sent by the U.S. to China in late April that outlined the steps Trump wanted Beijing to take on fentanyl.

The document, reviewed by Reuters, caused friction with Beijing because it referenced a congressional report that asserted China, through value-added tax rebates for exporters, directly subsidizes production of fentanyl precursors for sale abroad. China denies it does so.

The letter, sent to the ministries of foreign affairs, commerce, and public security, called on Beijing to publicize the crackdown on fentanyl precursors on the front page of the Communist Party mouthpiece People's Daily; send a similar message through "internal party channels" to party members; tighten regulation of some specified chemicals; and deepen law-enforcement cooperation.

Two officials familiar with China's reaction said it found especially the first two points "arrogant" because Beijing saw it as the U.S. dictating what China should do within its ruling apparatus.

One said fentanyl would feature in the Geneva talks and that the U.S. government's opening position would be to present the four points to China.

A U.S. official familiar with the letter said the Trump administration simply wanted China to curb the flow of fentanyl precursors to drug cartels.

Complicating the negotiations, Trump's Washington team has frozen out many U.S. embassy officials responsible for earlier contacts with Chinese counterparts, two people familiar with the matter said.

Trump's new ambassador to China, David Perdue, is slated to arrive in Beijing next week, but Deputy Chief of Mission Sarah Beran, who served as a senior official on China in the Biden administration's National Security Council, was removed from her post this week, the two officials said.  

The turmoil has resulted in lack of internal consultations on demands put forward by the American side, the officials said. An official familiar with Chinese thinking said there had been minimal contact with the U.S. embassy ahead of the Geneva talks.

(Additional reporting by Kevin Krolicki and the Beijing newsroom; David Lawder, Michael Martina and Andrea Shalal in Washington; and John Revill in Zurich; editing by David Crawshaw)