• Fentanyl and escalatory tariffs may see early rollbacks to foster negotiation momentum.
  • Reciprocal tariffs tied to industrial policy remain a sticking point, unlikely to ease soon.
  • Citi analysts predict a sustainable tariff range of 20–25%, with major breakthroughs delayed until after U.S. midterms.

A Gradual Thaw in Trade Tensions

Citi analysts suggest the U.S. and China are inching toward de-escalation, with some tariffs—particularly the 20% levy on fentanyl and the 91% 'escalatory' duties—potentially lifted within six months to create goodwill. However, the 34% reciprocal tariffs, deeply intertwined with domestic manufacturing agendas, will prove harder to unwind.

"Both sides have reasons to dial back tensions, but the path is uneven," noted one Citi strategist, speaking on condition of anonymity. "Fentanyl tariffs are low-hanging fruit, but industrial policy tariffs are existential for both economies."

The Sticking Points

The Biden administration’s April 2025 executive order triggered China’s retaliatory 34% tariff, which the U.S. met with an 84% hike on select goods. Meanwhile, adjustments to de minimis exemptions—raising duties to 90% or $75 per item—have further strained cross-border commerce.

While pharmaceutical and consumer goods could see relief, sectors like tech and advanced manufacturing face prolonged friction. "The U.S. won’t concede on tariffs tied to reshoring or tech competition," said a trade policy advisor briefed on the talks. "China’s subsidies for strategic industries are equally non-negotiable."

Political Horizons

With U.S. midterms looming, analysts expect only incremental concessions. "Tariffs could stabilize at 20–25% long-term, but don’t expect a grand bargain before November," the Citi report concluded. Beijing, meanwhile, may prioritize easing fentanyl tariffs to address U.S. concerns over opioid flows—a rare area of potential alignment.

—With reporting by Roic AI’s trade desk. Officials from the U.S. Trade Representative and China’s Commerce Ministry did not immediately respond to requests for comment.