I get a lot of requests for guest posts and am quite picky in what I put forward--this one I like a lot.
My guest author today is from One Minute MBA, and they break down the economic complications of the Senkaku Islands dispute between Japan and China, going a bit deeper than I have in the past. They illustrate the story below, pointing out some of China's options if the US takes a stronger pro-Japan stance than it has now.
1) I think China's economic retaliatory responses are all much more painful to China than they are the US. The US does have a few options to move some of its outsourcing (to Malaysia, the Philippines, Vietnam, etc), and cheap selling of US bonds would cost the Chinese hundreds of billions--more than the damage done to Japan so far.
2) A boycott of US goods would hurt some key exporters and would likely prompt some US aid for some of the exporters if they would otherwise go under. If the US similarly boycotted Chinese goods, it would need to be selective. Consumer goods boycotts would hurt US retailers; industrial goods boycotts would hurt US manufacturers.
3) I must admit my previous post on the Senkaku Islands, framing it as a distraction, was ultimately wrong. Whether it was originally intended as a distraction (for I'm still not sure of another good reason why the Chinese would escalate it after so many decades) or not, it has become a mainstay of Chinese foreign policy that they're not currently willing to put down.
4) The Chinese are unlikely to let the matter go entirely. As Professor M Taylor Fravel points out in "Strong Borders, Secure Nation," (a book I contributed some research to way back in the day), Chinese foreign policy is focused largely on maintaining territorial integrity, which (to Beijing, at least) requires a very consistent stance on territorial claims made at the end of the civil war, based on Ming dynasty maps of Chinese territory. In Beijing's eyes, giving up on any of these (including the Spratlys, the dispute it India, and the Senkakus) opens them up to lower bargaining power on future territorial disputes of greater import to their ultimate security.