(Reuters) - China and the United States have agreed to hold more trade talks in Beijing, Vice Premier Liu He told Chinese state media in the United States on Friday, following a round of discussions in Washington which he described as “honest” and “constructive”.

China's Vice Premier Liu He exits the office of the U.S. Trade Representative following a morning round of negotiations on the second day of last ditch trade talks in Washington, U.S., May 10, 2019. REUTERS/Leah Millis

The United States escalated a tariff war with China on Friday by hiking levies on $200 billion worth of Chinese goods in the midst of last-ditch talks to rescue a trade deal.

U.S. President Donald Trump issued orders for the tariff increase, saying China “broke the deal” by reneging on earlier commitments made during months of negotiations.

“Negotiations have not broken down,” Liu, China’s chief negotiator in the talks, said in a video clip posted by China Central Television (CCTV) on its mobile app.

“Quite the opposite, I think small setbacks are normal and inevitable during the negotiations of both countries. Looking forward, we are still cautiously optimistic.”

China strongly opposes the latest U.S. tariff hike, and as a nation, has to respond to that, Liu told a small group of Chinese reporters in the video clip.

“Right now, both sides have reached mutual understanding in many things, but frankly speaking, there are also differences. We think these differences are significant principle issues,” Liu said.

“We absolutely cannot make concessions on such principle issues,” Liu said, without giving details on what those issues were.

Sources told Reuters this week that China had deleted its commitments in the draft agreement that said it would change laws to resolve core complaints of the United States: theft of U.S. intellectual property and trade secrets; forced technology transfers; competition policy; access to financial services; and currency manipulation.

ECONOMY OPTIMISM

Liu also said he was optimistic about China’s economy in the longer term, adding that it had entered an up-cycle after bottoming out somewhat last year.

He said he believed the Chinese economy would maintain a stable and healthy trend despite some downward pressure, and that China had ample room for fiscal and monetary policy maneuvers.

On Monday, hours after Trump said he intended to raise tariffs, the Chinese central bank cut the amount of reserves that some small and medium-sized banks need to hold, freeing up more funds for lending to cash-strapped firms.