China’s chief trade negotiator indicated he was “cautiously optimistic” about reaching a phase one deal with the U.S., as two titans of American diplomacy in Asia warned of the dangers of escalating the tariff war.

Vice Premier Liu He made the comments in a speech in Beijing on Wednesday ahead of the Bloomberg New Economy Forum, according to people who attended the dinner and asked not to be identified. He has also invited his U.S. counterpart, Robert Lighthizer, to travel to China for talks this month, but the invitation hasn’t yet been accepted, people familiar with the matter said.

Speaking at the Forum on Thursday, former U.S. Secretary of State Henry Kissinger said America and China were in the “foothills of a Cold War,” and warned that the conflict could be worse than World War I if left to run unconstrained. Later in the day, former Treasury Secretary Henry Paulson warned of the perils of decoupling the world’s two largest economies.

Since President Donald Trump announced the phase one deal a month ago, markets have been whipsawed by comments from both sides, first indicating progress, and then the opposite.

The latest potential hurdle came after Liu made his dinner-time comments, when the U.S. House voted 417-1 for legislation supporting Hong Kong protesters that has already been unanimously approved by the Senate. It could go to Trump as soon as Thursday and he plans to sign the bill, a person familiar with the matter said.

Beijing’s Pledges

Liu also explained China’s plans for reforming state enterprises, opening up the financial sector, and enforcing intellectual property rights -- issues at the core of U.S. demands for change in China’s economic system. Separately from the speech, he told one of the attendees that he was “confused” about the U.S. demands, but was confident the first phase of an agreement could be completed nevertheless.

Liu’s remarks cushioned declines in stocks in Asia, Europe and the U.S. as investors weighed the impact of the House bill on relations between the world’s two largest economies.

U.S. and Chinese trade negotiators will continue communicating closely and work toward a phase one deal, Ministry of Commerce spokesman Gao Feng said at a briefing in Beijing on Thursday. Responding to questions including whether the two sides agreed on agricultural purchases and tariff removal, as well as a media report on the timetable for a deal, Gao said related rumors were not accurate. It was unclear exactly what he was referring to.

If efforts to reach a phase one deal fail before Dec. 15, Trump has threatened to impose 15% tariffs on some $160 billion in imports from China.

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