Despite having more of her first serves in, Watson was unable to break down her 21-year-old opponent, winning just half of the points possible on serve.
Liu also dominated on the returns, and converted four out of seven break points in the first meeting between the two players.
Also in Charleston, Petra Kvitova was unable to complete her matchup against Magdalena Frech, retiring in the second set.
Frech had won the opening set 7-6 (6), and was had a 3-2 lead in the second when the Czech player retired.
Shelby Rogers was also on the wrong end of a result, losing out in a three-hour thriller against Kaia Kanepi.
The home favourite - who needed a medical time out during the game - responded from being a set down but eventually lost 6-7(2) 7-5 6-2.
Despite the defeat, Rogers remained upbeat.
"Definitely not the outcome I wanted tonight," Rogers said after the loss. "I guess I have to say the cliche: 'It's not how many times you fall, it's how many times you get back up.'"
"When you walk out on court and you hear fans cheering my name, it's really special," she added. "You can always learn from your losses… even ones like tonight."
Earlier in the day, 16-year-old Linda Fruhvirtova returned to the site where she won her first match on the WTA Tour.
The Czech player won her opening game at the tournament, overcoming Ana Konjuh 4-6 6-1 6-3.
"It's beautiful and I'm honoured to have been able to be the first to play in it," Fruhvirtova said of the new stadium in an interview on the Tennis Channel.