Telegraph UK:
Ding Yifan, a policy guru at the Development Research Centre, said China could respond by selling holdings of US debt, estimated at over $1.5 trillion (£963bn). This would trigger a rise in US interest rates. His comments at a forum in Beijing follow a string of remarks by Chinese officials questioning US credit-worthiness and the reliability of the dollar.
China's authorities seem split over how to respond to moves on Capitol Hill for legislation to punish Beijing for holding down the yuan. The central bank has ruled out use of its "nuclear weapon", insisting that it would not exploit its $2.45 trillion of foreign reserves for political purposes. "The US Treasury market is a very important market for China," it said.However, the mood is hardening on both sides of the Pacific. The dispute risks escalating if China's trade surplus with the US climbs further and more US jobs are lost. US Treasury Secretary Tim Geithner, who has taken a softly-softly line in the past, said on Friday that China had done "very little" to correct the undervaluation of the yuan since ending the dollar peg in June.
If I were holding $2+ trillion in greenbacks, I wouldn't be talking trade war since the action of dumping them alone via depressing dollar value would raise import prices ino the US so high as to be a large tariff, and thus make it PROFITABLE to pay american wages for domestic consumption., and solve THE MAJOR SYSTEMIC PROBLEM facing american manufacturing. There would suddenly be very tight supplies for the few US made goods domestically, and the rest of the world would not only be tanking from the sudden loss of the world's largest market, they would be faced with CHEAP US GOODS TO COMPETE AGAINSTMr Ding reflects thinking among some in the Poltiburo, who seem convinced that the US is in decline and that China's rise as an exporter of goods and capital give it the upper hand.
"They are utterly wrong," said Gabriel Stein from Lombard Street Research. "The lesson of the 1930s is that surplus countries with structurally weak domestic demand come off worst in a trade war."
If a Shenzen made IPOD was suddenly 35-40% more expensive, people would be buying more of whatever was made in South Carolina and demand would cause expansion, yadda yadda.
So GO AHEAD, and MAKE MY DECADE