The loss of China's entire navy would be nothing compared to the loss the United States would experience as a consequence of war with a major trade partner. The loss of China's entire navy would be nothing compared to the loss the United States would experience when CSG-5 hits the bottom of the South China Sea. Basically China can push as hard as they want with no fear of the US actually taking action. Economically, China's won. America has invested a lot of money building infrastructure in China. On paper, we're richer, we own them, but ownership on paper isn't real control. Materially, they've got all the factories, and enough of the world's natural resources to make good use of them. If America embargoed tomorrow, China would still have the rest of the world as an export market. Diplomatic power is just a function of military power, don't fool yourself into thinking otherwise.True power in the international community is in economics and diplomacy. They are exposing themselves as amateurs here, I'm afraid.
IMO you overestimate China's power somewhat. Their due to corruption and inefficiencies, their infrastructure isn't nearly as robust as you might think. With Japan and India as allies, the US would have air and naval superiority in time, and thus they could disrupt most trade in and out of China, sinking ships, destroying rail and roads. Bombing the Three Gorges Damn would have tremendous consequences for energy production, other plants would be targeted as well; even before air superiority, the US has a ridiculous amount of submarines packed with missiles. In short, the war would happen in China more than in the US, and China would bear the greater costs. They do have a lot of factories, but the US still has a huge manufacturing sector. Of course, Russia would be a big question mark, but China would be running a losing race in a US/China conflict. Edit: I should add, my wife is Chinese. We travel and visit family there. I never want to see anything like this conflict.
There is no doubt that China needs the US far more than the US needs China. Our economy would suffer while we experienced shortages of some products, but manufacturing capacity is basically fungible. Many of those jobs would return home in short order, and the rest would return to Mexico, or be exported to Brazil or India. Let's not forget also, that we always read that the US is treaty bound to protect Japan, but it's not the US, it's NATO. That means Germany, Britain and France, too, or, you know, all of China's export economy. Of course, I hope that this never happens, as the human cost would be catastrophic. I have many Chinese friends and acquaintances, and I generally love the Chinese people. I just think their government is making a grave miscalculation.