China played down tensions with the United States after President Trump threatened in a tweet to impose a new round of tariffs on Chinese goods, and confirmed that Beijing's top negotiator will attend high-level trade talks in Washington this week.
Because of that, he said the 10 percent tariff on $200 billion of goods will go up to 25 percent on Friday and $325 billion of additional goods will shortly be taxed at a rate of 25 percent.
In recent months, both China and the USA have indicated that trade talks were heading toward a resolution that would end the ongoing trade war between the world's largest economies.
Stocks sank sharply Tuesday as investors fretted that delicate trade talks between the USA and China could collapse.
Fundamentally, not much has changed in the past 24 hours, though a Reuters report said China changed much of the draft agreement, removing many concessions it had reportedly made.
Sources with knowledge of the talks told Reuters that China has sought to alter previously agreed provisions specifying changes to Chinese laws affecting almost every chapter of a almost 150-page proposed trade deal between Washington and Beijing.
Chinese stocks have now fallen around 6% so far this week.
By the close of trading at 4pm local time, the United States markets had substantially recovered.
Amid fears a trade agreement with China is in jeopardy, President Trump says the Chinese Vice Premier is coming to the United States "to make a deal".
Vice Premier Liu He is still expected in Washington starting today to continue negotiations.
Mnuchin said "new information" over the weekend made it clear that China was backpedaling, but said the USA hopes the sides can reach a deal this week. US officials have said Chinese negotiators reneged in the past week on provisions in a draft deal the USA considered settled.
One private-sector source briefed on the talks said the last round of negotiations had gone very poorly because "China got greedy". A full-blown trade war would shave off 45 basis points from global economic growth, while China's GDP would take a hit of between 1.2% and 1.5%.
Beijing's top trade negotiator, Liu He, is traveling to the USA on Thursday and Friday for high-stakes talks.
It cited healthy consumer and tourism spending over the extended Labour Day holiday, as well as strong first-quarter trade figures and job creation numbers to argue that Beijing had managed to mitigate the negative fallout of US-China trade frictions.
"We still see a trade war as low probability given the next tranche of tariffs would hit U.S. consumer goods, but nevertheless it would have a big negative impact", he said.
When officials from the U.S. delegation left their most recent round of trade talks in Beijing last week, they had a sinking feeling. China would also have to move further towards the US position on other sticking points, such as demands for curbs on Chinese industrial subsidies and a streamlined approval process for genetically engineered USA crops.
"The Trump administration seems to have concluded that it is time to get it done". Trump said. In a subsequent tweet, he wrote: "Guess what, that's not going to happen". Higher tariffs are seen weighing on global economic growth, which could dent demand for energy supplies like oil and natural gas.