China and USA escalate trade tariffs–what is China’s non-military ‘nuclear option’?

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China has responded to Donald Trump’s escalation of tariffs:

China refuses to back down on tariffs after Trump threatened tougher measures

April 8, 2025

China is refusing to back down from President Donald Trump’s “blackmail,” as a global trade war sparked by Trump’s new tariffs rages on.

This comes after Trump threatened to increase tariffs on U.S. imports from the Asian country to more than 100% if Beijing refuses to reverse its move to match the “reciprocal” duties announced last week by the American president.

Trump said he would impose an additional 50% duty on U.S. imports from China if Beijing did not drop the 34% tariffs it imposed on U.S. products last week, which would bring the total levies against China to 104%. Beijing retaliated after Trump announced 34% tariffs against China on top of the 20% already imposed against the country earlier this year.

“The U.S. side’s threat to escalate tariffs against China is a mistake on top of a mistake, once again exposing the American side’s blackmailing nature,” China’s commerce ministry said.

“If the U.S. insists on having its way, China will fight to the end,” it added. https://www.foxbusiness.com/politics/china-refuses-back-down-tariffs-trump-threatened-tougher-measures

8 April 2025

China has hit back with tit-for-tat levies – 34% – and Trump warned that he would retaliate with an additional 50% tariff if Beijing doesn’t back down. …

“What we are seeing is a game of who can bear more pain. We’ve stopped talking about any sense of gain,” Mary Lovely, a US-China trade expert at the Peterson Institute in Washington DC, told the BBC’s Newshour programme.

Despite its slowing economy, China may “very well be willing to endure the pain to avoid capitulating to what they believe is US aggression”, she added. …

China has a “wide toolkit” for retaliation, he adds, such as depreciating their currency further or clamping down on US firms.

“I think the question is how restrained will they be? There’s retaliation to save face and there’s pulling out the whole arsenal. It’s not clear if China wants to go down that path. It just might.” https://www.bbc.com/news/articles/ckg51yw700lo

Before going further, let me add that these increases in tariffs for goods imported from China into the USA will be inflationary–prices will go up.

Michael Snyder posted the following related to that:

Are You Ready To Pay A 104% Tariff On All Products From China?

April 7, 2025

How many products do you have in your home right now that were made in China? If you are like most Americans, that number is very high. We should have never allowed ourselves to become so dependent on cheap Chinese goods, but we did. Walmart, Target and our dollar stores are absolutely teeming with products that were manufactured in China, and now those products are about to get much more expensive. The 34 percent “retaliatory tariff” that the Trump administration recently imposed on the Chinese was on top of a 20 percent tariff that the Trump administration had already imposed on them. The White House has confirmed this. Unfortunately, the 54 percent tariff that we were potentially facing will now rise to 104 percent thanks to an additional 50 percent tariff that will go into effect on April 9th. …

No matter how the pundits try to spin this, the truth is that we will be paying this tariff if we continue to purchase Chinese products.

It is easy to say that we should just switch to products made in the U.S., but in thousands of cases there simply are not any similar products manufactured here. …

I am particularly concerned about what these tariffs will do to the pharmaceutical industry, because Google AI says that the vast majority of the active ingredients in our pharmaceutical drugs are imported from China…

We are in so much trouble. https://theeconomiccollapseblog.com/are-you-ready-to-pay-a-104-tariff-on-all-products-from-china/

As I mentioned last week, tariffs are a type of tax that increases the cost of goods–hence they tend to be inflationary.

There will be many unintended consequences of Donald Trump’s statements and policies, including relating to trade and tariffs.

That said, notice the following headlines:

The nuclear option China could take in trade war with the US

Retaliatory tariffs may only be the beginning of Beijing’s counter attack https://www.telegraph.co.uk/business/2025/04/07/nuclear-option-china-could-take-in-trade-war-with-us/

No nation has ever been in as much total debt as the USA

The “U.S. is highly vulnerable to loss of confidence by foreign creditors.”[i] U.S. government debt is “extremely vulnerable to foreign attack because of the high percentage of foreign ownership.”[ii]

Interestingly, in the past, one foreign creditor, China, has raised concerns about the U.S. debt that are so serious, that its potential dumping of that debt has been called China’s “nuclear option”[iii] against the USA—an option that involves no military intervention, but that could greatly harm the USA.

European leaders have been working for years to establish a new reserve currency for the world, partially with the intent to remove the USA dollar from its current position as a reserve currency.

Those in Russia, Iran and some of the Arab lands, along with nations such as Brazil and India have discussed plans for the removal of the dominance of the USA dollar in global trade as well. Many are now working on that, along with China, in what is called the BRICS alliance.[iv] While Donald Trump did not cause all of this, an unintended consequence of the use of sanctions in the Trump-Pence Administration (as well as by the Biden-Harris Administration) is that more nations are looking to bypass the dollar. …

One of the unintended consequences of Donald Trump’s threats of tariffs and other trade matters is that it is motivating nations he has threatened to look to trade more with each other.

[i] Rickards J. Axis of Gold. The Daily Reckoning, December 20, 2016

[ii] Ibid

[iii] Gertz B, China Debt Threat. Washington Times, March 2, 2011

[iv]^{BRICS Expansion, the G20, and the Future of World Order. Carnegie Endowment for the International Peace, October 9, 2024}

(Thiel B. Unintended Consequences and Donald Trump’s Presidency: Is Donald Trump Fulfilling Biblical, Islamic, Greco-Roman Catholic, Buddhist, and other America-Related Prophecies? Nazarene Books, 2025, pp. 38-39, 52)

What is the nuclear option?

Yahoo posted the following:

In theory, Xi is sitting on a potentially nuclear option as he turns the screws on Trump.

China is the second-largest holder of US debt, known as treasuries, in the world. If it opted to dump this government debt, the blow to the US would be seismic.

According to the US Treasury, in January, China held $761bn (£592bn) in American government bonds. …

If China embarked on a mass sale of its US treasuries, the value of the debt would plunge and yields would soar. This would drive up US government borrowing costs and hammer the public finances in a highly destabilising move.

But the scenario is highly unlikely, not least because the pain for China would be huge. …

The Chinese state and its banks own around $3 trillion in dollar assets. “That’s roughly the value of UK GDP,” says Williams. “There is no way to offload $3 trillion of assets in a hurry.”

If China started selling, it would trigger a plunge in dollar values, immediately hammering the value of all of its remaining dollar holdings. 04/07/25 https://finance.yahoo.com/news/nuclear-option-china-could-trade-150000821.html

I saw Bill O’Reilly on News Nation last night mention China’s holding of US treasuries. He saw this as a point of leverage that China has.

China does have that, but realizes it needs to be cautious about it.

To reduce risks to itself, the Chinese have reduced its government’s holdings of US treasuries over the years–but it still has a lot.

One day, if it does not slowly reduce its holdings to a negligible amount, I expect China to utilize its nuclear option–dumping its US assets, which will help eliminate the US dollar as the primary reserve currency for the world.

That will NOT end well for the USA.

China is also facing risks:

8 April 2025

China’s political system – where state power and social control are dominated by the ruling Communist Party – could give Beijing an edge in a new trade war with the United States compared with other countries, experts and insiders have said.

But they warned that Chinese companies and local governments may lack the creativity to respond to a tariff war, as they rely on directives from the powerful central government. …

Zhu Feng, dean of the School of International Studies at Nanjing University, said China’s state-led administrative system had more room for “macroscopic prevention, adjustment and shifting to deal with the huge impact of the trade war on its economy and industry”.

If the trade war led to a sharp drop in China’s exports to the US, it would “have a catastrophic impact on the economy and damage people’s livelihoods and social stability”, Zhu said. …

Experts agreed that a trade war between the world’s two largest economies would most likely worsen China’s domestic economic situation.

Shi Yinhong, a professor at the School of International Studies at Renmin University in Beijing, said China’s internal unity was “not very solid” because of the economic downturn and high unemployment.

“People’s livelihoods are the most real things, and weak employment and incomes are big problems,” said the political scientist in eastern China.

But it would be unlikely that China would see mass protests over issues such as rising prices, as in the US, he added. https://www.scmp.com/news/china/politics/article/3305713/beijings-political-system-could-give-it-edge-trade-war-trump-experts-say

That said, there is another ‘nuclear option’ for China. This one would involve massively devaluing its currency as Newsweek reported last May:

Here’s How China’s Economic ‘Nuclear Option’ Would Impact US

May 24, 2024

China’s insatiable appetite for gold, copper, and other commodities has led to a debate over whether Beijing is gathering resources to hedge against the consequences of devaluing its currency.

If Beijing invoked the “nuclear option” and intentionally weakened the yuan (RMB), this would likely draw a fiery response from Washington, …

Weakening a currency relative to others has benefits, such as boosting exports by making them cheaper. This may be tempting to China’s leadership amid a manufacturing glut and low consumer confidence.

But there are also notable risks to such a move, including pricier imports, higher inflation, destabilization in the global currency market, and trade wars with nations suddenly flooded with Chinese goods that outcompete domestic industries. This has led economists to dub devaluation a “nuclear option.”…

The move would bring down the prices of myriad made-in-China products and put pressure on U.S. companies to do the same. https://www.newsweek.com/how-china-economic-nuclear-option-would-impact-us-1898488

If China were to devalue its currency in half, that would pretty much mitigate the 104% tariffs it may now be facing from the USA.

That would helps its exports, but could cause problems, including unrest in China itself.

There will be many unintended consequences of Donald Trump’s actions, statements, and threats.

Some items of possibly related interest may include:

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