(Updates with Trump comments at rally, Asian markets)
* Trump accuses China of cheating U.S. workers, stealing jobs
* Sources say China backtracked on draft agreement -Reuters
* U.S. says tariff hikes go live at 12:01 a.m. on Friday
* China vows unspecified retaliation against higher U.S. duties
* Two days of talks resume in Washington on Thursday
By Jeff Mason and David Lawder
PANAMA CITY, Fla./WASHINGTON, May 8 (Reuters) - U.S. President Donald Trump said on Wednesday that China "broke the deal" it had reached in trade talks with the United States, and vowed not to back down on imposing new tariffs on Chinese imports unless Beijing "stops cheating our workers."
The U.S. Trade Representative's office announced that tariffs on $200 billion worth of Chinese goods would increase to 25 percent from 10 percent at 12:01 a.m. (0401) GMT on Friday, right in the middle of two days of meetings between Chinese Vice Premier Liu He and Trump's top trade officials in Washington.
Speaking to supporters at a rally in Florida on Wednesday, Trump accused China of breaking the deal and that Beijing would pay if no agreement is reached.
"I just announced that we'll increase tariffs on China and we won't back down until China stops cheating our workers and stealing our jobs, and that's what's going to happen, otherwise we don't have to do business with them," Trump told a cheering crowd.
"They broke the deal," he added. "They can't do that. So they'll be paying. If we don't make the deal, nothing wrong with taking in more than $100 billion a year."
Trump's comments fueled a round of selling in Asian markets
Beijing has announced it would retaliate if tariffs rise.
"The Chinese side deeply regrets that if the U.S. tariff measures are implemented, China will have to take necessary countermeasures," China's Commerce Ministry said on its website, without elaborating.
The world's two largest economies have been embroiled in a tit-for-tat tariff war since July 2018 over U.S. demands that the Asian powerhouse adopt policy changes that would, among other things, better protect American intellectual property and make China's market more accessible to U.S. companies.
Expectations were recently riding high that a deal could be reached, but a deep rift over the language of the proposed agreement opened up last weekend.
Reuters, citing U.S. government and private-sector sources, reported on Wednesday that China had backtracked on almost all aspects of a draft trade agreement, threatening to blow up the negotiations and prompting Trump to order the tariff increase.
Trump, who has embraced largely protectionist policies as part of his "America First" agenda, warned China on Wednesday that it was mistaken if it hoped to delay a trade deal until a Democrat controlled the White House.
"The reason for the China pullback & attempted renegotiation of the Trade Deal is the sincere HOPE that they will be able to 'negotiate' with Joe Biden or one of the very weak Democrats," Trump, a Republican, tweeted on Wednesday.
"Guess what, that's not going to happen! China has just informed us that they (Vice-Premier) are now coming to the U.S. to make a deal. We'll see, but I am very happy with over $100 Billion a year in Tariffs filling U.S. coffers," he added.
In response, Biden's deputy campaign manager, Kate Bedingfield, criticized Trump, saying on Twitter that U.S. farmers, small-business owners and consumers were the ones hit by the tariff battle.
Speaking to reporters, White House Press Secretary Sarah Sanders said the Trump administration had received an "indication" that China wants an agreement.
U.S. stock indexes rebounded slightly from this week's earlier losses after her comments, but the S&P 500 and the Nasdaq closed in negative territory amid caution over trade and some disappointing earnings.
Washington is demanding Beijing make sweeping changes to its trade and regulatory practices, including protecting U.S. intellectual property from theft and forced transfers to Chinese firms, curbs on Chinese government subsidies and increased American access to China's markets.
Trump also has sought massive hikes in Chinese purchases of U.S. farm, energy and manufactured products to shrink a gaping U.S. trade deficit with China.
Sources familiar with the talks said China's latest demands for changes to a 150-page document that had been drafted over several months would make it hard to avoid the U.S. tariff hike on Friday. That increase would affect Chinese imports from computer modems and routers to vacuum cleaners, furniture, lighting and building materials.
Scott Kennedy, a China expert at the Center for Strategic and International Studies in Washington, said the talks were at a delicate stage and much depended on what sort of proposal Liu is bringing to Washington.
"I think the Trump administration is quite serious about imposing tariffs," Kennedy said. "I don't think Liu He would have agreed to come if he was just going to give the U.S. a lecture."
(Reporting by Jeff Mason in Panama City, Florida, and David Lawder in Washington; Additional reporting by Makini Brice in Washington; Writing by Chris Prentice and David Alexander; Editing by Paul Simao, Lisa Shumaker and Peter Cooney)
Our Standards: The Thomson Reuters Trust Principles.