It’s all about the trade war between the US and China this morning, and more specifically, how will Xi retaliate to Trump.

For those who missed the overnight fireworks, late on Monday, President Trump asked the US Trade Representative to identify USD 200BN in Chinese goods for further tariffs of 10% which will be imposed if China refuses to change its practices and goes ahead with its retaliation threat, while he also stated that China raising tariffs is unacceptable and that the US will pursue tariffs on another USD 200bln of Chinese goods if China increases tariffs yet again.

Predictably, China – which last week reacted instantly to Trump’s first round of $50BN in tariffs – again responded immediately, wasting no time in accusing Trump of “blackmail.” China’s commerce ministry said on its website that if the US “irrationally” moves forward with the tariffs then China has no choice but to “forcefully fight back” with “qualitative” and “quantitative” measures.

“China’s response is to safeguard the interests of the country and its people,” China’s Mofcom said, adding that the US “practice of extreme pressure and blackmail departed from the consensus reached by both sides during multiple negotiations and has also greatly disappointed international society”.

But now that the chips are on the table, and Trump is locked into a tit-for-tat strategy with China from which neither he nor Xi can “defect” without losing face, the question is how exactly will China retaliate to punish the US while minimizing the damage to China’s economy as much as possible.

There are 6 possible things that China can do at this time, in order of escalating severity:

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