While the drug was not mentioned publicly after earlier negotiations, recent comments suggest the topic could come back into the spotlight
The trafficking of materials to make the drug fentanyl – the issue cited by the US in its initial tariff escalation against China in March – is set to be back in focus for future talks, analysts said, after two previous rounds did not appear to broach the subject.
Speculation over the drug’s presence in future negotiations was fuelled by US President Donald Trump’s remarks on the topic Wednesday, making reference to China’s “big steps” – including the threat of the death penalty for smugglers – to curb the movement of chemical precursors across American borders.
If the issue is addressed, some experts said the tension between the world’s two largest economies could be further relaxed in August, after a 90-day truce agreed to during May talks in Geneva. Others expressed greater optimism, estimating a return to the 2020 trade deal that ended the escalatory spiral – albeit temporarily.
“It’s reasonable to view the fentanyl issue as a potential ‘third stage’ in US-China negotiations, particularly given how politically salient it has become in Washington,” said Matteo Giovannini, senior finance manager at the Industrial and Commercial Bank of China and a non-resident associate fellow at the Centre for China and Globalisation, a Beijing-based think tank.
“While not traditionally a trade matter, the fentanyl crisis has been elevated to a core national security and public health concern in the US, which means it can be leveraged in broader bilateral talks.”
Fentanyl is a powerful synthetic opioid. It has become the leading cause of death in the United States for people aged 18 to 45, according to the country’s Drug Enforcement Administration.
Washington, which blames China for the crisis, slapped a 20 per cent tariff on Chinese goods on March 4.
If we see some types of agreements on fentanyl, it doesn’t mean that the economic tensions are over
___Nick Marro, Economist Intelligence Unit
Beijing strongly denied the US’ claims and struck back by imposing retaliatory tariffs on selected American imports, including natural gas, soybeans and pork.
Before the May talks in Switzerland, reports emerged that Chinese President Xi Jinping would include Minister of Public Security Wang Xiaohong in the delegation, fuelling speculation that fentanyl would be addressed, though no discussion of the issue was mentioned publicly.
Subsequent talks also seemed to sidestep the question – the first round led to the 90-day truce and a rollback of most tariffs, while the second round in London concentrated on the mutual removal of export controls.
On Thursday, a spokesman for China’s foreign ministry urged Washington to “seek dialogue based on equality and mutual respect” if it wanted the problem to be solved.
Nick Marro, principal economist for Asia at the Economist Intelligence Unit, said fentanyl is a way for the two countries to buy time as they seek to resolve more deep-seated disputes.
“If we see some types of agreements on fentanyl, it doesn’t mean that the economic tensions are over,” he said.
“It just means that these trade tensions have been further kicked down the road and will reignite at some point in the future.”
Marro warned that the US still has more structural quibbles with China that have been frequently brought up in negotiations, including market barriers, tight data rules and concerns over excess capacity and deflation.
Stephen Olson, a former US trade negotiator, said China may offer purchase commitments in coming negotiations in exchange for concessions, with some tariff relief likely sufficient.
“Particularly if these commitments are in sectors that China would be inclined to import anyway, such as soybeans, it might not be that difficult of a concession for China to give, provided that the purchase levels are within reason,” Olson said.
Statements from prominent US figures seem to support this thesis. Stephen Biegun, the US deputy secretary of state from December 2019 to January 2021, said at the Aspen Security Forum on Wednesday that the coming US-China trade deal “is very likely to resemble” the phase-one agreement signed in January 2020, where China committed to buying US$200 billion in additional American goods over two years.
But in that deal, Olson said, almost all the concessions were on China’s side – and “there is no way” Beijing would be willing to make a similar agreement.
“This time around, China will need to demonstrate that it has also secured concessions from the US, and a substantial reduction in tariffs will probably be near the top of their list.”
Giovannini said the current bilateral relationship is more complicated than before, and involves issues beyond trade like national security, technology competition and global alliances.
“Any new agreement would likely be broader in scope but more flexible in form, less about dollar figures and more about stable mechanisms for managing friction,” he said.
On Tuesday, US Treasury Secretary Scott Bessent told Bloomberg TV the two countries were “in a very good place” ahead of an expected meeting, adding it would be important to “move on and talk about China opening its markets and the increase of domestic and consumer production there”.
