Treasury Secretary Steven Mnuchin said Friday the Trump administration is prepared for an escalation of its trade dispute with China.

"Our objective is still not to be in a trade war with [China]," Mnuchin said on CNBC's "Power Lunch." "I'm cautiously optimistic that we will be able to work this out."

But, he added, "there is the potential of a trade war."

Mnuchin said the U.S. is in "communications" with China, but he didn't want to comment on the progress of the talks.

"Right now we have initiated a plan. The tariffs will take some period of time to go into effect. There will be public comment, while we're in the period before the tariffs go on. We'll continue to have discussions," he said. "The president wants reciprocal trade."