Ordinarily, when I read a senior government official stating:
“We have other methods of addressing those who threaten us, and of addressing those who supply the threats. We have great capabilities in the area of trade.”
[US Ambassador to UN Nikki] Haley said she spoke at length to President Donald Trump on Wednesday morning about “countries that are allowing, even encouraging trade with North Korea, in violation of U.N. Security Council resolutions.”
“Such countries would also like to continue their trade arrangements with the United States,” she said. “That’s not going to happen. Our attitude on trade changes when countries do not take international security threats seriously.”
I discount such talk as constituting a non-credible threat. That’s because punishing China with effective trade sanctions would likely hurt America as much as the target (including through third channels as the global economy is hurt).
But the threat is truly non-credible if the agents are rational, as in the Rational Agent model of international relations (see alternatives, here). But using that model as a baseline is probably not correct for the Trump Administration. I think a better framework for analysis (if not a model) would be stumbling into conflict with a misapprehension of costs, benefits, and the workings of the world, as in this case.
Of course, that does not mean that China would accede to US demands even if we imposed sanctions.