Dear Focus Reader,

This week, signs of potential de-escalation emerged in the U.S.-China trade conflict, as Beijing signaled it is open to dialogue, so long as Washington takes the first step.

Chinese officials said the "door is open" for renewed trade talks with the U.S., but emphasized that any negotiations must be rooted in mutual respect and free from "coercive" pressure. They pointed specifically to the rollback of recent tariffs as a prerequisite. The Trump administration, which has so far upheld the 145% average tariff rate, reportedly reached out to Beijing to explore a framework for discussions.

Markets responded quickly. The news of possible trade talks helped lift U.S. stock futures midweek, even as the broader economic relationship remains deeply strained. American importers and retailers continue to absorb steep costs, while Chinese exports are facing delays, factory suspensions, and furloughs as demand from the U.S. shrinks.

At the same time, Beijing is gradually reducing its reliance on U.S. Treasuries, once a cornerstone of its foreign reserves, and shifting capital into gold, private equity, and other foreign bonds. This move is part of a broader strategy to protect China's financial system from external risks, particularly potential U.S. sanctions, as rising tensions spill into capital markets. Analysts view this shift as a step toward reducing China's vulnerability to Washington's influence.

That same strategy of reducing external dependencies was also evident in Beijing's latest push on artificial intelligence. At a high-level policy meeting last week, President Xi Jinping emphasized the urgency of achieving breakthroughs in homegrown chipmaking and foundational software — sectors where China remains vulnerable to U.S. export controls. The call aligns with efforts to build a self-sustaining AI ecosystem, underscoring a broader policy shift toward insulating China's economy and innovation system from foreign pressure.

Learn more on China-U.S. relations by catching up on our latest Focus content, including topics on nuclear proliferation, a Xi-Trump "Grand Bargain," and more.