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A Chinese flag in Beijing’s central business district. While China has many options with which to retaliate against potential United States tariffs, it has few good ones.

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Jason Lee/Reuters

China’s wherewithal to play rough in a trade war with the United States is not as strong as it looks. Beijing is mulling whether to slow or halt purchases of United States Treasuries, Bloomberg reported on Wednesday. The reason may simply be to diversify assets. But as the largest foreign holder of Uncle Sam’s liabilities with $1.2 trillion, China also appears to have some leverage as the Trump administration considers imposing tariffs. Like other retaliatory measures, however, ditching Treasuries would end up costing China.

The dollar declined around 0.6 percent against a basket of currencies on Wednesday, hinting at the challenge involved. Beijing would weaken the dollar if it sold Treasuries, which might in turn reduce the competitiveness of Chinese goods abroad. Officials could mitigate that by purchasing other dollar-denominated assets, but it’s not clear there are enough alternative safe, liquid securities. Threatening to rush for the exits also means China risks selling into a falling market.

The cost of selling echoes a broader theme: While Chinese officials have many options with which to retaliate against potential United States tariffs, they have few good ones.

Take agriculture, which contributed nearly a fifth of all American goods exported to China in 2016. Strict and effective enforcement of tariffs levied on staple goods such as soybeans and pork would hurt American farmers in Upper Midwest swing states. But it also risks generating higher inflation on the mainland. Looser de facto enforcement of product origins — more likely for commodities — would simply reroute supply chains through a third country. That keeps consumer prices in check, but it also renders the tariffs largely symbolic, which happened after Beijing slapped retaliatory tariffs on chicken parts from the United States in 2010, according to Brad Setser of the Center on Foreign Relations.

Beijing is likely to retaliate if the Trump administration uses pending reports on steel, aluminum and intellectual property to impose tariffs. But based on past experience, these would largely be tit-for-tat.

The most painful measures might instead be informal harassment of American firms operating in China. Local media have already floated the idea of striking Apple and Boeing, among others. Bureaucrats can deploy state-inspired consumer boycotts, surprise inspections, denials for licenses and so forth. That squeeze would be painful for executives and investors. But it would also be another case in which Beijing’s tight grip indicates a weak hand.

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