Treasury Secretary Mnuchin says there is the possibility of a trade war with China, but that's not the objective

• Treasury Secretary Steven Mnuchin tells CNBC the U.S. is in "communications" with China.
• "I'm cautiously optimistic that we will be able to work this out [with China]," Mnuchin says.
• But, he adds, "there is the potential of a trade war."

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."

Treasury Secretary Steven Mnuchin testifies to the House Financial Services Committee on "The Annual Report of the Financial Stability Oversight Council" on Capitol Hill in Washington, U.S., February 6, 2018.

Joshua Roberts | Reuters

Mnuchin also noted that President Donald Trump is actively involved on a daily basis in the tariff plans with him and U.S. Trade Representative Robert Lighthizer.

Trade tensions with China rose to new highs this week when the Trump administration on Tuesday detailed its targets of Chinese imports to be subjected to tariffs.

On Wednesday, China responded by announcing plans for tariffs on 106 U.S. products, including soybeans, cars, aerospace and defense. Then on Thursday, Trump instructed the U.S. trade representative to consider $100 billion in additional tariffs against China.

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