Yan Zhang

USA Today

The United States has the upper hand in its escalating tariff battle with China: China’s exports to America are almost four times the U.S. shipments to China.

But China has other weapons against its nemesis besides further tariffs.

Nearly half of U.S. companies doing business in China said they've experienced non-tariff retaliation from China since the U.S. first imposed duties last July, according to a survey this month by the American Chamber of Commerce in China. The group represents more than 900 American companies operating in China.

“Increased regulatory enforcement, greater inspection of U.S. shipments, preferential treatment with respect to procurement, etc., can cause significant losses to U.S. businesses,” says Thomas Prusa, an economics professor at Rutgers University. “Most observers underestimate the leverage China has with these other tools of trade policy.”

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The question of how else China can strike back at the U.S. is increasingly debated as the U.S. begins preparing tariffs on the remaining $300 billion or so in Chinese imports, a move that would add to existing U.S. duties on $250 billion in imports from China.

The U.S., by contrast, exports just $120 billion in goods to China.

Here are five possible steps China could take to hurt the U.S. economy beyond more tariffs.

Stop buying American products

China could renege on its promises to buy an additional 10 million tons of U.S. agricultural products. That would prolong the pain for American farmers beset by lower sales to China and falling prices.

“Trump’s trade war is turning the world’s most productive farming sector into a giant welfare state as U.S. farmers will apparently receive (for a second consecutive year) massive government subsidies in order to stay in business,” Prusa says.

China is also threatening to stop funding a $43 billion natural gas project in Alaska, according to the South China Morning Post, a daily newspaper based in Hong Kong.

Slow down customs clearances

“The customs process has become increasingly more stringent and tougher for many foreign companies over time,” says John Larkin, president of Larkin Trade International, a consulting firm specializing in trade compliance in China.

Nearly 20% of American companies have experienced slower customs checks in China, the latest survey of American Chamber of Commerce in China shows.

Ford's imported vehicles were held up at Chinese ports last year in an apparent trade war-related tactic. China also delayed imports of U.S. fruits and nuts in May 2018. American businesses and farmers already dealing with higher tariffs will face more trouble if the goodsget stuck at China’s ports again.

Sell its U.S. Treasury holdings

China is the biggest holder of U.S. government debt.

In March, China sold the largest amount of Treasurys in almost 2 1/2 years, according to the Treasury Department. China’s total stake was $1.12 trillion in March.

A growing number of analysts are raising the prospect that China may invoke its "nuclear option" selling its holdings or reducing its current purchases, which could push up U.S. long-term interest rates.

But this could hurt China too, as higher rates will push down the price, dampening the value of the country's Treasury portfolio.

Let the renminbi slide vs. dollar

Another card China could play is letting its currency slide in value against the dollar, making its goods cheaper abroad and offsetting American tariffs.

“When the U.S. tariffs were 10%, it was more likely for the exchange rate to absorb the impact without causing great collateral damage,” Prusa says. However, “it is implausible for the exchange rate to fully offset the impact of 25% tariffs.”

A falling renminbi would also make U.S. products more expensive in China, compounding the effect of Chinese tariffs on U.S. exports.

Slowing license, other approvals for U.S. firms

China also could set up tougher inspections of U.S. companies in China in areas like taxes, firefighting equipment and environmental certificates; slow down business license approvals; and encourage Chinese consumers to boycott American products.

“The Chinese domestic market will be much bigger than the U.S. market soon," says Mauro Guillen, a professor of international management at the Wharton School.

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China, of course, could also slap more tariffs on U.S. goods. But “The deeper point is that tariffs are just one policy China can use,” Prusa says. “China has other ways to respond.”