Trade war: China is armed with powerful market weapons in duel with Trump

China, the world's second-largest economy, has some markets levers it can pull to escalate the battle

China has a powerful financial-market arsenal for its trade tussle with America, including a hoard of Treasuries and its currency. But using those weapons is not without cost.

Beijing has vowed to retaliate should U.S. President Donald Trump follow through with his threat to raise tariffs Friday on $200 billion of Chinese imports to 25% from 10% percent. But simply responding with its own tit-for-tat tariffs isn’t China’s most likely move, said Brad Setser, a former Treasury official who’s now a senior fellow for international economics at the Council on Foreign Relations.

“Matching the U.S. dollar-for-dollar on the U.S. tariffs would imply