my niece, the bully...

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my son is 17 months old and his cousin is almost 3. compared to other 3 year olds, she is very tiny for her age, but she is still bigger than my son. she is a very big bully, not only to my son, but to other kids. my brother and sister in law are proud to say that she has made a 7 year old boy cry! in my opinion, she is way too aggressive and bossy, and even though her parents see this, they dont stop her. i have to be the one to pull her away from my son, and follow her around to make sure she isnt hurting him. i am not raising him to be physical, so when she is pushing him, pulling his hair, or pinching him, he just takes it. i do not want to teach him to fight back like that. is this wrong of me? i do want to teach him to tell her to stop, but he cant really talk much yet. i have brought it up to my brother, but he thinks its funny and good that his daughter can defend herself. then i brought it up to my sister in law, and she agrees with my brother! they say that she is so tiny, and they dont want other kids to think that they can pick on her and get away with it. so i tried to make them see it differently - they have a new baby, 4 months old now. i asked them if they are going to feel comfortable to leave her alone with him when he gets a little older, and they didnt answer. i told them that they have to stop her from doing this, because once shes in school, shes going to get into a lot of trouble for this. they still dont see it from my point of view, in fact, i was just told today that they are going to put her into karate...so that she can learn MORE ways to defend herself. oh great! now i am really going to feel uncomfortable leaving my son alone to play with her. what would you do if you were in my shoes? i am not going to tell them how to raise their daughter, but i am wondering what i should do about my son and her bullying him. please help me, i dont want him to be afraid of his cousin.