When U.S. President Donald Trump's administration slapped punitive new tariffs on imports of solar panels and washing machines this week, the Chinese government responded the way many expected it to: It did nothing.
The new duties, and the threat that levies on China's exports of steel and aluminum could be next, have given rise to warnings of looming revenge from Beijing, through new measures against U.S. auto makers, restrictions on imports of U.S. agricultural products, strengthened anti-trust investigations against U.S. multinational companies or a sell-off of U.S. Treasury bonds.
The United States, Beijing has also warned, is hurting itself nearly as badly as it is injuring China: "Trump's raising of tariffs this time, to me, is like a Chinese saying: 'Kill a thousand enemies at the cost of 800 of your own soldiers,'" said Sheng Liugang, an international trade specialist at the Chinese University of Hong Kong.
But China's unwillingness to return more than verbal fire after the White House's salvo this week has pointed to a more complicated reality for China. If a trade war breaks out, it has less ammunition than the United States and worse options for where to aim it.
"I don't think China has much leverage. After all, you have a huge trade surplus against the United States," said Tao Ran, director of the China Center for Public Economics and Governance at Renmin University in Beijing. That surplus hit a new record last year after expanding by 8.6 per cent, further underscoring China's vulnerability to trade measures abroad.
"China and the Chinese economy cannot afford a trade war at all," Prof. Tao said. "Because its economy is so heavily dependent on exports."
If a trade war is in the offing, in other words, it promises to be a one-sided affair.
In Washington, plans are being laid for a multipronged trade assault on China, including additional tariffs and reprisals against alleged violations of intellectual-property rights. Mr. Trump has publicly mulled a giant "fine" against China.
In Beijing, however, few expect a direct return of fire.
Instead, China is likely to to proceed more cautiously, delivering its reprisals "indirectly," said Zuo Chuanchang, chief research fellow with the Academy of Macroeconomic Research at the National Development and Reform Commission, China's powerful economic planning agency.
That could include pressing U.S. companies, particularly those with interests in both countries, to lobby Mr. Trump to back off, since his course of action is not good "for the global trade system," Mr. Zuo said. China is also likely to challenge U.S. tariffs at the World Trade Organization.
If Mr. Trump does make good on threats of further measures, however, "China will do something," Mr. Zuo said. That could include restricting capital outflows, which would lower foreign investment dollars to the U.S.
China's U.S. investments totalled $46-billion (U.S.) in 2016.
Another option is selling some of the $1.2-trillion in Treasury securities China owns, "as a countermeasure" that would damage the U.S. dollar, Mr. Zuo said. "It's one of the choices," he said.
Other possible strategies were outlined by the Communist Party-run nationalist Global Times newspaper on Wednesday, including new inspection standards for U.S. beef or limits on imports of U.S.-made electrical and mechanical parts. Beyond that, possibilities include regulations on the number of Chinese students allowed into the United States, as well as Airbus SE or Boeing Co. aircraft allowed into China.
The newspaper also raised the possibility of tariffs on U.S. cars.
Many of those measures are difficult for China to achieve without causing itself substantial harm, however. It does not have a domestically produced jetliner that can compete with foreign-made models, as one example. Its protectionist measures have also kept out purely foreign players, giving it fewer targets. Overseas car makers have formed joint ventures with Chinese companies for most of their sales in the world's largest auto market. In 2016, only 4 per cent of cars sold in China were imported.
"The increasingly complex and two-way nature of many of these industries make it less attractive to impose tariffs in many industries," said Louis Kuijs, head of Asia economics at Oxford Economics.
"If there were to be an escalation, it will hurt China more than it will hurt the U.S.," he added.
Exports to the United States account for almost 4 per cent of China's economy, while exports to China make up less than 1 per cent of U.S. GDP.
One particular U.S. vulnerability lies in agriculture, where China could tighten health and safety standards to inflict pain on U.S. producers.
Chinese authorities also have the ability to fire back through less obvious means, such as anti-trust probes of U.S. companies, Prof. Sheng said.
"China could, of course, retaliate with tariff measures, but that would create a backlash for our own consumers," he said. That said, "raising tariffs is not the only option."
Perhaps the best thing China can do is acknowledge that trade frictions with the United States are inevitable and prepare industries that are likely to be affected, said Shen Guobing, deputy director of the Institute of World Economy at Fudan University.
China could also consider what he called a "multilateral trade transfer" to reduce its dependence on the United States. But that's no quick fix: Such a plan "could be realized in 50 years," Prof. Shen said.
Indeed, if the Trump administration carries through on the tough measures it has signalled, Beijing will be forced to confront "a very difficult choice," Prof. Tao said.
At the heart of many trade frictions with the United States – and other Western economies – lie Chinese rules that have, despite occasional promises to the contrary, largely fenced off important segments of its economy from foreign investment. The finance, telecommunications, aviation, transportation, resource and energy sectors are "heavily regulated and dominated by state-owned enterprises," Prof. Tao said.
"China's domestic markets could be more open," he said, but the country's current leadership, under President Xi Jinping, is charting a course in the opposite direction by strengthening the role of government in the economy. It's part of a broader rejection of Western constructs as China attempts to establish its own political and economic model.
Therein lies the difficult choice: If Mr. Xi is willing to abandon that course, he could, perhaps, assuage some of the anger abroad.
But, Prof. Tao warned, "If you don't want to do that, then you have to wait for more trade wars."