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Trump, Xi Could Strike a Deal That Lowers Fentanyl-Related Tariffs

Oct 28, 2025 13:58:00 -0400 by Reshma Kapadia | #Trade #Feature

China’s President Xi Jinping, left, and U.S. President Donald Trump, are meeting on Thursday. (DAN KITWOODNICHOLAS KAMM/POOL/AFP/AFP via Getty Image)

Key Points

President Donald Trump and Chinese leader Xi Jinping are expected to emerge from a much-anticipated meeting Thursday with a plan to stabilize the two countries’ frayed relationship and possibly a deal that includes lowering fentanyl-related tariffs on China.

Any deal that includes reduced tariffs would cheer financial markets, but might not do much for the businesses caught in the middle of their heightened rivalry.

The meeting will cap off a week of negotiations between U.S. officials and their Asian counterparts as they try to flesh out preliminary trade pacts struck in recent months. The focus, though, is on the Xi-Trump meeting.

Over the weekend, trade negotiators from both sides in Malaysia hashed out a preliminary framework agreement for the two leaders to discuss to defuse recent tensions. For instance, the U.S. has suggested it will lift Trump’s recent 100% tariff threat on China if Beijing delays implementation of new rare earth restrictions that could roil global supply chains.

A hefty list of trade-related issues are on the table for discussion, including U.S. tariffs related to fentanyl flows, Beijing resuming its purchases of U.S. agricultural products, recent shipping fees both countries have slapped on each other, and other export controls. Beyond trade, Beijing’s approval of ByteDance’s divestiture of TikTok will likely come up. Beijing has also been looking for the U.S. to shift its language about Taiwan, the island democracy China claims as its own, and say it opposes independence.

While the pre-negotiations tee up the prospect of a substantive agreement, it’s unclear whether the two sides will reach a deal that can be implemented immediately—or more of an understanding implemented over months, says Mira Rapp-Hooper, a partner at consultancy The Asia Group and formerly a White House advisor on East Asia and Oceania.

Andy Rothman, head of China-focused research firm Sinology, expects a “very modest deal.” He projects China will agree to continue shipments of critical rare earth elements and defer implementation of the new restrictions. The U.S. will likely vow not to increase tariffs further or to extend its own export restrictions on advanced technology such as on cloud computing or software, he added.

But there is also a road map to a sweeter deal that includes Beijing doing more to curb the sale of chemicals used to make fentanyl, resuming its purchase of soybeans to alleviate the pressure on American farmers, or approving ByteDance’s divestment of TikTok, if Trump is willing to deepen concessions, Rothman says.

One possible concession could be a suspension of some of the fentanyl tariffs to assess progress on China’s efforts, says David Meale, who leads Eurasia Group’s China practice and previously worked as deputy chief of mission in Beijing for the State Dept. Such a move would boost both U.S. and Chinese stocks.

FBI Director Kash Patel is expected to travel to China, possibly allowing for some sort of deal related to fentanyl flows that could mean lower tariffs. China produces large quantities of the chemicals that go into make synthetic opioids that have been the source of a surge in overdoses in recent years.

Cutting the 20% fentanyl tariffs, though, could complicate the overall trade picture by lowering the levy on some Chinese exports, currently at about 55%, to be more in line with—or even lower than—the tariffs on some southeast Asian countries.

That could interfere with U.S. efforts to encourage companies to diversify out of China—often into countries like Vietnam, Thailand, and Indonesia. China could ultimately end up with higher tariffs —even if the U.S. reduces the levies related to fentanyl—if the White House eventually uses Section 301 of the Trade Act or other avenues to raise tariffs, analysts say.

For the U.S. to get other items on its wishlist, like soybean purchases and assurances on rare earth flows, the administration could consider rescinding some export controls on tech—possibly allowing China to buy more advanced chips from the likes of Nvidia or delaying implementation of the expansion of its entity list. The U.S. could also stop the pressure it is putting on third countries in Asia and Europe to curtail their business with China.

But analysts stress that much of the policy details of a prospective deal are also unclear. For China, restrictions on its access to U.S. technology has been a critical issue. In late September, the Commerce Department expanded its so-called entity list that restricts U.S. transactions with those named to cover more than 10,000 Chinese businesses, up from around 2,000.

The U.S. could also relax export controls on tech—possibly allowing China to buy more advanced chips from the likes of Nvidia—or delay implementation of the expansion of its entity list.

Policy watchers say details will matter, such as whether any offer to freeze further policy actions against China applies to just technology export controls, or also includes sectoral tariffs and Section 301 investigations that could result in more levies. Similarly, what Beijing says about rare earth elements will be critical.

“The two sides are on course to get some sort of equilibrium on these issues. Some subset is likely to happen on Thursday and then other pieces they will have to keep working on,” says Meale.

Here, Meale sees the calendar offering potential anchors for the relationship, which could lend themselves to a phased deal. State visits for Trump and Xi to each other’s countries are already scheduled for next year—as are the Group of 20 meeting being held in Miami and the next Asia Pacific Economic Cooperation summit to be held in China.

Even with some progress at Thursday’s meeting, Meale worries about businesses caught in the middle. That’s because both the U.S. and China are likely to lean on their areas of leverage, including export controls, as their rivalry causes the two economies to rely less on each other, at least in critical sectors. “It’s going to be a really bumpy road with mini crises like we have just seen,” Meale says.

Since Trump turned up the heat on tariffs this spring, stocks have dropped. Then, they’ve recovered when the president backed off. The pattern is known as Trump Always Chickens Out—TACO.

“The market will in short-term celebrate mode the more it looks Trump has TACO’d,” says Brian McCarthy, chief strategist at MacroLens. But he adds that any agreement will likely be a punt on the critical issues at the heart of the friction.

Write to Reshma Kapadia at reshma.kapadia@barrons.com