WASHINGTON, United States (AFP) — US President Donald Trump on Sunday said he sees an end to the escalating trade dispute with China, after tit-for-tat retaliatory tariffs and threats that rattled markets.

“China will take down its trade barriers because it is the right thing to do,” Trump said in a tweet.

“Taxes will become reciprocal & deal will be made on Intellectual Property. Great future for both countries!”

He added that he and China’s President Xi Jinping “will always be friends, no matter what happens with our dispute on trade.”

US stocks plunged more than two per cent Friday after Trump warned of tariffs on an additional US$100 billion worth of Chinese imports, provoking a strong response from Beijing and fanning fears of a full-blown trade war.

Investors were unnerved by the latest broadside from the volatile US president and by China’s strident response, which vowed Beijing would stand firm “until the end at any cost.”

Some global investors have, however, taken solace from signals that the Trump administration may be taking a harsh line as a bargaining tactic towards dealmaking with China.

In the wake of Trump’s decision in March to impose steep tariffs on steel and aluminum imports, primarily to target China, the US on Tuesday published a list of US$50 billion in Chinese goods to be hit by tariffs over what Washington says is widespread theft of intellectual property and technology.

China retaliated by unveiling planned levies on US$50 billion worth of major US exports including soybeans, cars and small aircraft.

Trump hit back again late Thursday, instructing trade officials to consider the additional levies on US$100 billion in imports.  

“Rather than remedy its misconduct, China has chosen to harm our farmers and manufacturers,” Trump said at the time, calling Beijing’s reaction “unfair.”

So far, only the tariffs on steel and aluminum have taken effect.

US businesses, and farm states most vulnerable to Chinese retaliation, have called for restraint.

Treasury Secretary Steven Mnuchin acknowledged there was a risk of a trade war, but said the intention is to defend US interests and the administration remains willing to negotiate.

Speaking Friday on CNBC, Mnuchin said Trump is not aiming to provoke a conflict with China, but he is determined to defend US interests and “there is the potential of a trade war.”

But he said the White House is willing to negotiate and is in regular contact with Chinese officials. He argued that the situation could be a “win-win” for China and the United States if Beijing opens up its economy.

“I’m cautiously optimistic to work this out,” Mnuchin said, adding that “I think that we can manage this without significant difficulty to the overall economy.”

China has filed two complaints at the World Trade Organization claiming the United States has violated global trading rules, a charge the White House dismissed.