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The Chinese government has issued a vague but severe warning that it will respond to a bill passed by Congress that would allow the White House to protect human rights and regional independence. But China's options for retaliatory responses are limited, and those options have already been used in the trade war with President Donald Trump. The clearest way to retaliate is to stop buying American goods. But China has already imposed tariffs on US products worth $ 135 billion, and sales to China from across the United States have fallen . The US agricultural sector has been particularly hard hit, with bankruptcies rising by 24% this year. A report from the Federal Office of US Farmers found that 40% of farmers' income this year will come from insurance payments or government rescue packages. This is an economic disaster for many farmers and a headache for many other exporters. But the damage has been done, and few expect exports to China to recover even if the trade war ends tomorrow because China is finding other suppliers. Even those US exporters who still sell their products in China must realize that their situation is fragile and, if they are wise, they should The search for alternative markets. Therefore, China has little more to threaten on the trade front. The other big weapon in China's arsenal is investment. The Chinese government is a major traditional buyer of US government debt and holds the second largest amount of treasury bonds (after Japan). Over the years, many have worried that any disagreement between the United States and China would lead to the sale of this mountain of debt, causing great pain to America's financial system and economy. But this risk is exaggerated for two reasons. First, as recent experience has shown, the United States simply does not need Chinese government funds. In 2015 and 2016, China witnessed one of the largest capital flight in history, with some $ 1 trillion flowing out of the country, causing a significant drain on China's foreign reserves, mostly US bonds. If the United States was heavily dependent on Chinese government funding, interest on US debt would have risen, but declined. If China can get rid of a quarter of its holdings of US bonds without causing significant movement in US borrowing costs, the threat from the other three quarters is likely to be minimal, and the United States, like most of the Western world, is simply overwhelmed by investment funds. Moreover, easing reserves in response to US actions toward Hong Kong would put it at greater risk than America without the reserve pillar. If the escape wave recurs, there will be a crisis in traditional emerging markets in which capital outflows will cause a sudden depreciation of the currency, destroying the financial system and the economy as a whole. The only thing China can do is to curb exports of rare metals, which are a key input to many technological products. China currently dominates the production of these goods, but as my colleague, David Fickling, pointed out, this threat is also weak. When China banned exports of rare materials to Japan in 2010 as part of a geopolitical dispute, Japan simply cooperated with an Australian company to find new supplies and quickly ruled On China's monopoly of the field, the United States can easily follow suit. Consequently, China no longer has many economic weapons threatened by the United States over Hong Kong, and will be equally unable to respond to any other geopolitical and humanitarian disputes such as the US condemnation of the mass detention of Muslims in Xinjiang Province or disputes in the South China Sea. China's ability to escalate the trade war is limited. But China has other weapons at its disposal, the kind of weapon that explodes. During US pressure on China from trade to human rights and Hong Kong, it must remember its history. It was the relentless economic and diplomatic pressure on Japan over its invasion of China that prompted the country to launch a surprise attack on Pearl Harbor in 1941. With China's economic arsenal running out, at some point it can be decided that the strongest kind of response is the solution, and so the escalation of US and Chinese tensions makes the world a more dangerous place
