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“China has already prepared for the worst,” said Liu Yuanchun, executive dean of the National Academy of Development Strategy at Renmin University in Beijing. “The two sides, therefore, should sit down and negotiate.”

The dispute reflects the clash between Trump’s promise to narrow the U.S. trade surplus with China — a record $375.2 billion last year — and Beijing’s ambitious plans to develop Chinese industry and technology.

Last July, U.S. Treasury Secretary Steven Mnuchin complained the Chinese government’s dominant role in China’s economy was to blame for its yawning trade surplus.

State-owned companies dominate Chinese industries including oil and gas, telecoms, banking, coal mining, utilities and airlines. They benefit from monopolies and low-cost access to energy, land and bank loans.

The ruling Communist Party promised in 2013 to give market forces the “decisive role” in allocating resources. But at the same time, Xi has affirmed plans to build up state industries the party says are the central pillar of the economy.

“The thing that is going to be more challenging for Beijing is if the U.S., European Union and Japan get together and start taking measures on state-owned enterprises,” said Baig. “That for me would be an escalation, whereas product-by-product back and forth, amounting to a few billion dollars here or there, is not a major substantive concern.”

Foreign governments also accuse Beijing of violating free trade by requiring automakers and other foreign companies to work through state-owned Chinese partners. That requires them to give technology to potential competitors.

Last month, a U.S. official cited as “hugely problematic” Beijing’s sweeping plan to create Chinese competitors in electric cars, robots, advanced manufacturing and other fields over the next decade. Business groups complain that strategy, dubbed “Made in China 2025,” will limit or outright block access to those industries.

The country’s top economic official, Premier Li Keqiang, promised at a news conference on March 20 there will be “no mandatory requirement for technology transfers.” However, Chinese officials already deny foreign companies are required to hand over technology, leaving it unclear how policy might change.

Trump ordered U.S. trade officials on March 22 to bring a WTO case challenging Chinese technology licensing. It proposed 25 percent tariffs on Chinese products including aerospace, communications technology and machinery and said Washington will step up restrictions on Chinese investment in key U.S. technology sectors.