Mnuchin: There Is ‘Potential’ for a Trade War With China

Secretary of the Treasury Steven Mnuchin on Friday warned there is "potential" a trade war could occur with China but said he is "cautiously optimistic" the Trump administration will be able to work things out.

Mnuchin appeared on CNBC's "Power Lunch" to talk about the administration preparing for an escalation of its trade dispute with China. Earlier this week, Trump imposed tariffs on $50 billion of Chinese goods, prompting China to announce new tariffs  on a variety of U.S. goods, such as soybeans, cars and airplanes.

"Mr. Secretary, just homing in on your comment that ‘we are not in a trade war.' If this is not a trade war, what does a trade war, in the administration's view, actually look like? Because the markets rights now believe that we are in a trade war." co-host Melissa Lee said.

"So what would a trade war look like if this is not the beginning of one?" Lee asked.

Mnuchin said he never said this isn't the "beginning" of a trade war, prompting Lee to say, "So it is the beginning of a trade war?"

"There is the potential of a trade war," Mnuchin said. "And let me just be clear, it's not a trade war. The president wants reciprocal trade. So right now, China buys about $130 billion of goods from us and we buy about $500 billion of goods from them. That's not reciprocal free and fair trade."

The Treasury secretary added that there will be come time before the president's tariffs will go into effect, and meanwhile, discussions will continue.

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

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

Mnuchin went on to say the United States is in "communication" with China, but he didn't want to go into detail about the progress of the talks.