BEIJING (Reuters) - China and the United States are holding “in-depth” discussions on a first phase trade agreement, and cancelling tariffs is an important condition to reaching a deal, the Chinese commerce ministry said on Thursday.

FILE PHOTO: Chinese and U.S. flags flutter near The Bund, before U.S. trade delegation meet their Chinese counterparts for talks in Shanghai, China July 30, 2019. REUTERS/Aly Song

The degree of tariff cancellation should fully reflect the importance of a ‘phase one’ agreement, ministry spokesman Gao Feng told a regular briefing.

“China has emphasized many times that the trade war began with additional tariffs and should end with the cancellation of additional tariffs,” said Gao.

On Tuesday, U.S. President Donald Trump said a trade deal with China was “close” but offered no details and warned that he would raise tariffs “substantially” on Chinese goods without such a deal.

Trump’s threat was a reference to previously announced tariffs of 15% on about $156 billion of Chinese consumer goods set to take effect on Dec. 15, according to trade experts and a source close to the White House.

Those tariffs would hit video game consoles, computer monitors, Christmas decorations and items given as gifts during the approaching festive season.

Last week, White House advisers said the Dec. 15 tariffs would probably be averted if a ‘phase one’ trade deal was reached.

“If both sides reach a ‘phase one’ deal, the degree of tariff cancellation should fully reflect the importance of the ‘phase one’ deal; and its importance should be appraised by both sides together. Both sides are conducting in-depth discussions on this now,” said Gao.

Highlighting the volatile state of play in the 16-month long trade war, officials of both sides had said last week they had a deal to roll back tariffs, only to have Trump deny any deal had been agreed.

Trump has imposed tariffs on billions of dollars of Chinese goods to force major changes in China’s trade and industrial policies.

The U.S. administration is demanding that China end the theft and forced transfer of American intellectual property and curb subsidies to state-owned enterprises, while granting U.S. companies more access to China’s markets.

Trump also wants China to substantially increase its purchases of U.S. farm products.

China and the United States were near a deal in May when Beijing pulled away, prompting Trump to raise tariff rates and embark on new rounds of punitive duties.

If an interim deal is finished and signed, it is widely expected to include a U.S. pledge to scrap tariffs scheduled for Dec. 15.

A source previously told Reuters that Chinese negotiators wanted the United States to drop 15% tariffs on about $125 billion worth of Chinese goods that took effect on Sept. 1.

They also sought relief from earlier 25% tariffs on about $250 billion of imports, ranging from machinery and semiconductors to furniture.

Gao said last week that both countries must simultaneously cancel some tariffs on each other’s goods to strike a first phase pact.

“Cancelling tariffs is in the interests of producers, consumers, China, the U.S., and the world,” said Gao on Thursday.

A Reuters poll of economists showed the trade war is unlikely to see a permanent truce over the coming year.

China’s economic growth has further slowed since the trade war erupted last year, expanding at its weakest pace in almost three decades.

Chinese factory output slowed substantially more than expected in October, weighed by the ongoing trade war and broad weakness in global and domestic demand.

The disappointing numbers show China is off to a rough start in the final three months of 2019 and will bolster calls for Beijing to roll out fresh support.

The U.S. economy is forecast to have expanded at an annualized pace of 1.9% in the July-Sept period, slightly down from 2.0% in the second quarter.

Growth is expected to hover around that rate in each quarter through to the second half of 2021, according to economists.