That kind of thing is very much a nuclear option, though. Firstly because the state that does it needs to be very confident it can operate the asset it seizes without overseas support, and secondly because doing so tends to be bad for business in your country in general, as people understandibly get nervous about having stuff in places that have shown a willingness to just take it.

Completely agreed, it is rational to de-escalate by several steps (e.g. to have cloud providers "spontaneously" decide to split into different, actually autonomous but still privately owned, corps, which in turn is a threat to returns of the home corp so they would put pressure on the US government not to escalate this far politically, and so on).

It's just that the possibility of the "nuclear option" works as a deterrent.

The nuclear option would be the US pulling cloud services over night. This would be the counterstrike, not the initial nuke launch.