We're well beyond "This is how it starts ...." and deep into "This is how it escalates ....."

ref :- "China Has Arsenal of Non-Tariff Weapons to Hit Back at Trump" , Bloomberg Business

You remember that slightly more optimistic, "risk-on" feeling running through markets at the beginning of the week ? The cautious hope that having imposed tariffs on $34 billion of imports from China on Friday (a move that was immediately reciprocated) , President Trump might allow enough time before climbing back on the trade war wagon for cooler heads to exert some influence ? It didn't look wholly realistic then and certainly doesn't this morning, with stocks lower and the dollar higher as Mr Trump threatens to slap tariffs on an additional $200 billion of Chinese imports.

The President believes that because the US imports much more from China than the other way around  --  $505 billion of goods versus $130 billion  --  the US can be the only possible winner in any trade war . Most analysts would say that there are likely to be NO winners and that everybody loses, just to varying extents. It is of course true that the balance of trade between the two nations means that the US has a lot more scope for the imposition of tariffs, but it doesn't mean that China doesn't have other methods with which to respond to US action.

Most obviously China could raise existing tariffs above the current 25%, but it could also hamper the operations of US companies in China by increasing regulatory oversight. It could put a brake on approvals processes or simply enforce cancel orders on the purchase of US goods. They might encourage consumer boycotts of US products, a process the Chinese people have proved themselves happy to comply with in the past. In 2012, when China was engaged in a spat with Japan over disputed islands in the South China Sea, the subsequent consumer embargo dealt a severe blow to Japanese car manufacturers. And only last year, Chinese anger at S. Korea's missile shield saw a ban placed on package tours to that nation that severely damaged its tourist industry.

And then there's one of Mr Trump's great personal bug-bears, the Chinese currency. We have to assume from the way he has railed against it in the past that the President is fully aware of the pain inflicted on US trade not just by a weakening Yuan, but also by weakness in other emerging market currencies that are led by it. Markets were encouraged by Beijing's willingness to see the Yuan appreciate since early 2017, and many might accept that its weakness over the last 3 months can be put down to other factors rather than a deliberate policy of weakening the currency by Chinese authorities. But even if that's so, it's perfectly feasible that Beijing would be prepared to push the Yuan lower if the gloves came off.

But the most dramatic action China could take is to dump some of its vast hoard of US Treasury bonds. Bloomberg calls this the nuclear option, and thinks it unlikely as the huge spike in yields that would result from such a step would hurt China (and everyone else) as much as the US. They're probably right ..... although it would be foolish to ever underestimate the determination of President Xi Jinping not to be pushed around . One might also hazard a guess that he believes that for all the new wealth in the country the Chinese people could handle hardships better than their US counterparts. He would certainly believe that given the two different political systems, his position would be a lot more secure than Mr Trump's.

Sounds a bit extreme, doesn't it ? Well yes, but that's the point about tit-for-tat escalations .....  you just can't be sure where it will end. The US administration would argue that given China's failure to act upon their initial complaints, they had no option but to ramp up their own actions. We should not forget that at the heart of all this the US had some entirely legitimate grievances. The trouble is that that in spurning the route of negotiation that he so despises, Mr Trump has embarked on commercially bellicose path that is very difficult for either side to draw back from, and any initial rights and wrongs get lost in all the sabre-rattling.

So we may be waiting for those cool heads to do their thing, but it seems that there aren't too many of them around in the corridors of power .... not in Washington, anyway.