As China and the U.S. near a trade war, both nations bring different weapons to the table. For the U.S., it's direct tariffs on the plethora of goods it imports, while for China the calculus is a little different.

China is limited somewhat in the amount of retaliatory tariffs it can apply, simply because it doesn't import nearly as much in American goods compared with what the U.S. takes of Chinese products. China imported just $129.9 billion from the U.S. in 2017, compared with $505.5 billion in exports, according to the Census Bureau.

"China is going to run out of direct reprisals quickly should it look to match the U.S. in tariffs," LPL Research said in a note. "There is also broad agreement globally that China engages in a range of unfair trade practices, which provides some moral high ground for the U.S. to demand concessions."

What China does have at its disposal is a handful of other measures that, while not as likely to be implemented as simple tariffs, remain potentially harmful.

Markets are clearly nervous about the possibility of an escalation. The Dow industrials took a big tumble in market action Tuesday while government bond yields and commodity prices also mostly moved sharply lower.

Describing the environment, Craig Erlam, senior market analyst at forex brokerage Oanda, noted that while China "doesn't want a trade war, it's not afraid to engage in one" and thus "it's difficult to see how and when this ends."

In figuring out how it ends, markets will be watching where it's going.