Well reasoned! But is there any way in which the trade war makes sense in the first place? Could it be just a diversion?

Is this in reality is a FINANCE -or better FINANCIAL STRUCTURE- war?

The US might be betting, that in the short term, it is in a better position to twist China's financial arm than the reverse. If the US looks at that longer term, its financial house deteriorates quickly and over time the USD might decline as the lead currency.

Why is much of "trade negotiation" being led by Steve Mnuchin, the Treasury Secretary, rather than Wilbur Ross in Commerce? Why are Lighthizer and Navarro railing against a possible compromise by Mnuchin and the Goldman guys? (see Navarros speech at CSIS last Friday)

Maybe because the Chinese still hold around $1.2 trillion in US Traesuries. But more importantly, they themselves have to refinance about $1.8 trillion in USD denominated debt over the next 13 months.

The veneer of Chinese financial respectability has already worn very thin, and recently published work e.g. on the structure of their bond market, shows how rickety and flawed their financial system still is (see ZhiGuo He).

Mind you, they have made great efforts to drain their financial swamp, but they are still waist deep in water and now are getting back deeper into it.

So divulging the weaknesses and undermining their refi capabilities, could seriously damage their standing in USD denominated financial markets.

It may not be wise to be as cocky as the Trump administration, but they may have found a Chinese Achilles that allows them to extract significant concessions.