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As President Donald Trump piles on tariff threats, China could use other tactics to strike back at U.S. businesses and the economy, like driving down its own currency or barring U.S. service sector companies, according to Goldman Sachs economists.

Trump upped the ante in the trade battle between the world’s two largest economies Thursday night by proposing tariffs on another $100 billion in Chinese goods.

China already retaliated against $50 billion of tariffs Trump proposed earlier this week but could soon run out of ammunition. The Asian nation only imported $131 billion in U.S. goods in 2017 and would be unable to respond in kind if U.S. tariffs do rise to $150 billion.

Goldman said there are other things China could do, like undercutting the U.S. by cheapening its currency.

“First, a currency depreciation could be used to offset some of the effect of tariffs,” the economists wrote. “Second, Chinese authorities could sell some of its large official-sector holdings of US Treasuries, which would lead to a tightening of US financial conditions.”

China is the largest holder of U.S. Treasurys.

Goldman also pointed out that Chinese authorities could take the trade skirmish out on U.S. companies in the services sector, by limiting their access to the Chinese market.

The U.S. has a $38 billion trade surplus with China, with services exports totaling $56 billion annually, the economists noted. That compares to the more than $370 billion trade deficit in goods.

The Goldman economists said they believe Trump’s threat of an additional $100 billion in tariffs is mainly a negotiating tactic, but it raises the potential for more announcements that could disrupt markets over the next few weeks.

Jan Hatzius, Goldman’s chief U.S. economist, told CNBC on Friday that the battling over trade has not yet made him change his economic forecast, but it could hurt select sectors if tariffs become official.

“I do think the risks have increased over the last few weeks. Certainly the announcement last night was a surprise. I don’t think the Chinese retaliation against the U.S. $50 billion was a surprise. That had been clearly signaled, but we have seen escalation beyond that,” Hatzius said on “Squawk on the Street.”

“We think that means there is more risk there, but not enough for us to change our baseline forecast for an economy that is growing above trend and a Federal Reserve that continues to hike once a quarter.”



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