President Donald Trump has announced a reduction in the fentanyl-related US tariff on Chinese imports from 20 percent to 10 percent, bringing the overall average tariff on Chinese goods from 57 to 47 percent. He said the move was made in response to a Chinese commitment to take unspecified measures to tighten control on the production and export of fentanyl precursor chemicals and is part of a broader package of actions to reduce bilateral economic tensions. The deal could be interpreted as a down payment on a more fully articulated agreement to be pursued in meetings next year.
The fentanyl-related measure should make modest contributions to both the US economy and public health. Tariffs on China have been associated with higher prices and slower growth in the United States, and their partial removal should have a beneficial impact. At the margin, the tariff cut should also contribute to continued industrial activity by providing US manufacturers with more competitive access to imported inputs.
The shift could also save lives. Intensified Chinese enforcement of regulations on fentanyl and its precursors could contribute to the reduction of fentanyl-related overdoses in the United States. Drug overdose is the leading cause of death among Americans aged 15–44 years, exceeding heart disease, cancer, suicide, vehicular accidents, and COVID-19 in 2023. Since 2016, fentanyl—a synthetic opioid that is up to 50 times stronger than heroin and 100 times stronger than morphine—has been the drug most frequently associated with these deaths. Although fentanyl-related deaths have declined significantly since peaking in mid-2023, the annual toll is still nearly the level of US casualties for the entire Vietnam War.
Most illicit fentanyl consumed in America originates outside the United States. The suppression of this inflow has become the subject of high-level diplomacy and a particular concern of both the first and second Trump administrations. In October 2017 President Trump declared opioid overdoses to be a public health emergency and initiated a multi-pronged strategy to reduce drug-related deaths, including halting the inflow of drugs to the United States. While enhanced resources for drug interdiction was one component of the strategy, diplomacy with supplier countries was another, building on efforts undertaken by the Obama administration. Trump also raised the fentanyl issue directly with Chinese president Xi Jinping.
What followed were a series of bilateral agreements culminating in a May 2019 commitment by China to end direct shipments of fentanyl to the United States that had been fueling the illicit trade in the drug.
While it might seem surprising, research shows that the consumption of addictive substances is responsive to price changes. There is some evidence that existing users vary their consumption in response to price fluctuations (the intensive margin). There is even more evidence that the willingness of people to initiate consumption responds to price (the extensive margin).
China’s May 2019 embargo materially boosted the US street price of fentanyl in the United States for three to five months. Those higher prices resulted in approximately 1,000 fewer fentanyl overdose deaths than would have occurred otherwise, according to a recent PIIE Working Paper, Stopping the flow: The effects of US-China cooperation on fentanyl markets and overdose deaths. After that short period, fentanyl production and trade were rerouted through third countries, principally Mexico. This resulted in a decline in prices, an increase in deaths, and a shift in the US diplomatic agenda toward the control of precursor chemicals used to manufacture fentanyl, which continued through the Biden administration. As China has gradually tightened regulation of precursor chemicals, criminal gangs have shifted procurement toward India, another major producer of pharmaceutical chemicals. Most recently, the Trump administration has imposed tariffs on China, Mexico, and Canada for their roles in the crisis.
The stopgap measure benefits China and countries in Southeast Asia that have been impacted by the diversion of Chinese exports away from the United States. It should also marginally reduce the incentives for transshipment of Chinese goods through Southeast Asia, a particular bête noire of the Trump administration. But the lack of detail and uncertainty about the Chinese commitment to enforcement means the public health benefits, while potentially substantial, are highly uncertain. That said, the agreement warrants cautious optimism. The resolution on the crisis will require greater efforts by the US to suppress the demand side of the market while working with China, Mexico, Canada, and India on the supply side.
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