Maybe the rational ones don't want a war, but America is a prisoner to its own political system. They cannot compromise as this is interpreted as weakness and unacceptable loss of face. The currently planned Taiwan policy act would change the name of the embassy to Taiwan representative office, declare them a major non NATO ally, it would permit the showing of the Republic of China flag and allow meetings between top government officials. It would also include selling/donating some weapons. There is also a provision for joint exercises or even stationing troops there, modelled after the US military advisory group Thailand, which involved tens of thousands of soldiers who were based in Thailand
The arms deliveries aren't really a problem, China can deal with it. But if the name of the embassy is changed, China will be forced to either accept that countries can now have official relations both with Taiwan and China, dropping the one China policy, or China will have to suspend diplomatic relations with the United States. Taiwan may also be emboldened and invite American "advisors" and "trainers" onto the island.
Once the American ambassador has been expelled and the PLA is holding another exercise around the island, the risk of war is very high. It's a bit similar to how nobody wanted a world war before WW1, but they just slid into it. Neither China nor the US want a major war, but if no side can comprise, war becomes more likely. If this act passes without amendment, we could see a severing of US-China diplomatic relations this year and a plan for a joint Taiwan US military exercise next year.
How can China react without immediate invasion?