* Trump says to raise U.S. tariffs on $200 bln of Chinese goods
* Beijing says still trying to understand the situation
* China vice premier due in Washington this week, may not go
By Ben Blanchard and Jeff Mason
BEIJING/WASHINGTON, May 6 (Reuters) - China said on Monday that a delegation was still preparing to go to the United States for trade talks, even as U.S. President Donald Trump dramatically increased pressure on Beijing to reach a deal, saying he would hike tariffs on Chinese goods this week.
Trump's comments on Sunday marked a major escalation in tensions between the world's two largest economies, and a shift in tone from the president, who as recently as Friday had cited progress toward a deal.
Stock markets sank and oil prices tumbled on his remarks, as negotiations to end the months-long trade war were thrown into doubt.
"We are also in the process of understanding the relevant situation. What I can tell you is that China's team is preparing to go to the United States for the discussions," Chinese Foreign Ministry spokesman Geng Shuang told a news briefing.
But Geng did not say if Vice Premier Liu He, who is China's lead official in the negotiations, will be part of the delegation as originally planned. Negotiations are set to start May 8 in Washington.
"What is of vital importance is that we still hope the United States can work hard with China to meet each other half way, and strive to reach a mutually beneficial, win-win agreement on the basis of mutual respect," Geng said.
The Wall Street Journal reported earlier that China was considering cancelling this week's meetings in Washington in light of Trump's comments, which took Chinese officials by surprise.
Trump appeared to defend his decision in a tweet early Monday, slamming the U.S.-China trade deficit and vowing not to lose out to Beijing.
A less-than-rosy update from U.S. Trade Representative Robert Lighthizer, including details that China was pulling back from some previous commitments, prompted Trump's weekend decision.
"The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!" Trump said in a tweet.
Trump said tariffs on $200 billion of goods would increase on Friday to 25 percent from 10 percent, reversing a decision he made in February to keep them at 10 percent due to progress between the two sides.
The president also said he would target a further $325 billion of Chinese goods with 25 percent tariffs "shortly," essentially covering all products imported to the United States from China.
U.S. officials did not weigh in on whether they expected talks to go ahead this week. The White House and the U.S. Trade Representative's Office declined to comment. China's commerce ministry did not immediately respond to a request for comment.
"The atmosphere of the negotiations has changed," said a Chinese official with knowledge of the situation.
Whether and how the talks proceed are being re-evaluated, the official told Reuters on condition of anonymity.
"All that depends on the attitude of the United States," the official said.
Chinese news outlets have been told not to independently report on Trump's tweets, and instead adhere to any report from the official Xinhua news agency, said a source with direct knowledge of the matter.
Global financial markets, which had been expecting news of a trade deal soon, went into a tailspin. U.S. equity futures fell more than 2 percent and stocks across trade-reliant Asia tumbled. China's main indexes slid 5 percent.
"There is still a question of whether this is one of the famous Trump negotiation tactics, or are we really going to see some drastic increase in tariffs," said Nick Twidale, Sydney-based analyst at Rakuten Securities Australia. "If it's the latter, we'll see massive downside pressure across all markets."
Mindful of his 2020 re-election bid, Trump had also suggested the duties were not leading to price increases for U.S. consumers. "The Tariffs paid to the USA have had little impact on product cost, mostly borne by China," he tweeted.
Tariffs on Chinese goods are actually paid to the United States by companies that import the goods, and most of those companies are U.S.-based. American businesses, while supportive of Trump's crackdown on China's trade practices, are eager for the tariffs to be removed, not expanded.
"Raising tariffs means raising taxes on millions of American families and inviting further retaliation on American farmers," said Christin Fernandez, a spokeswoman for the Retail Industry Leaders Association.
Nevertheless, the president's aggressive strategy drew rare bipartisan support from U.S. Senate Democratic leader Chuck Schumer, who urged Trump to "hang tough" in a tweet: "Don't back down. Strength is the only way to win with China."
One Chinese trade expert said recent signs of resilience in both economies were breeding over-confidence.
"The urgency is gone. So, it's likely to see a longer trade war," the expert said, speaking on condition of anonymity due to the sensitivity of the topic.
The trade war resulted in billions of dollars in losses for both sides in 2018, hitting autos, technology and above all, agriculture, while inflicting collateral damage on export-reliant economies and companies from Japan to Germany.
On Friday, Trump said talks with China were going well.
Last week, industry sources said they believed the talks were in the end game, but a Trump administration official said aides had told the president that significant hurdles remained.
The increase in U.S. tariffs on Friday would be the first since Trump imposed 10 percent tariffs on $200 billion of Chinese goods in September, coming on top of 25 percent tariffs on $50 billion of goods enacted earlier last year.
Negotiations about tariffs have been one of the remaining sticking points between the two sides. China wants the tariffs to be removed, while Trump wants to keep some, if not all, as part of any final deal to ensure China lives up to its commitments, a White House official said on Sunday.
Reporting by Jeff Mason, David Shepardson, Timothy Gardner, Lawrence Hurley and Makini Brice in Washington; Sinead Carew in New York; and Ben Blanchard, Michael Martina, Shu Zhang, Jing Xu, Cheng Leng and Yawen Chen in Beijing; Editing by Simon Cameron-Moore and Jeffrey Benkoe