Talks between the United States and Canada will continue Friday after the two sides made "good progress" in their effort to rewrite NAFTA, as Washington was poised for a possible escalation in its trade war with China.

Discussions with Canada -- the largest US trading partner -- seem to be on track to agree on a rewrite of the 25-year-old North American Free Trade Agreement. Washington has already reached a new deal with Mexico.

But there have been no further discussions to try to resolve the US dispute with Beijing, and Trump could announce the next step -- steep duties on half the goods America imports from the world's second-largest economy -- as soon as Thursday.

Updating reporters on efforts to keep NAFTA 2.0 as a three-party trade deal after a meeting with US Trade Representative Robert Lighthizer, Canada's top diplomat Chrystia Freeland said it "was important to discuss a few points face to face," adding: "We are making good progress."

She added senior officials would continue to work through part of the night and she would meet Lighthizer again on Friday.

Freeland earlier spoke of "goodwill on both sides" but declined to give any details or say whether the discussions would continue into the weekend.

"If I had sleeves I would be rolling them up right now, but it's too hot for sleeves," she quipped, in reference to the sweltering weather in the US capital for the past week.

"We really are confident a deal which is good for Canada, good for (the) United States and good for Mexico is possible and that's what we're working towards."

The talks have been hung up over Canada's insistence on retaining a dispute resolution mechanism in Chapter 19, and the US objections over Ottawa's tight controls over the dairy market.

- China trade war? -

The deadline for public comment on the next wave of punitive taxes on $200 billion of annual imports from China expires Thursday, and Trump reportedly wants to impose the tariffs immediately.

That would take the total goods targeted to $250 billion of the $500 billion imported from China each year.

Trump has had Beijing in his crosshairs since he took office, and has applied increasing pressure to try to convince it to change its policies, allow more imports and reduce the $335-billion US trade deficit with China.

In Beijing, China's commerce ministry said Thursday it was ready to retaliate.

"If the US dogmatically implements any new tariff measures against China, China will have to take the necessary countermeasures," commerce spokesman Gao Feng told reporters.

Those steps include slapping tariffs on $60 billion of US imports, Gao said.

China so far has retaliated dollar-for-dollar with tariffs of its own on US goods, but since it imports less than $200 billion a year from the United States, it has run out of room to match the US.

But businesses warn there are other ways China can strike back, through regulations and other administrative means.

The last effort at a negotiated solution came in late August with meetings between low-level officials, but nothing came of it.

Gao said the two sides were still in contact and communicating on a working level, and "exchanging opinions on issues of mutual concern to work towards resolving the China-US trade problems."

US businesses have become increasingly concerned about the tit-for-tat tariffs, which are raising prices for manufacturers and hurting US consumers and farmers.

But Trump has been unapologetic, insisting that his tough tactics will work.

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