China vows it will retaliate due to the Chinese Consulate closure in Houston. How? By dropping a bomb? Cutting off all trade? Worse?

They cannot "Demand" payment on the loans.  The only thing they can do it stop buying US bonds.  And cash in the ones they have as they mature. 

The will not bomb us.  That would be stupid on their part and they know it.  They may use more tariffs or currency manipulation.