Merkel pledges 'every effort' to avert US trade war

German Chancellor Angela Merkel said on Wednesday that the European Union will make every effort to avoid a trade war with the US and underlined her country's commitment to raise defence spending gradually - another point of contention with Washington.

President Donald Trump's administration has imposed tariffs on EU steel and aluminum imports and is mulling whether to add tariffs on cars, trucks and auto parts, something that could be painful for Germany with its major auto industry.

"It is worth every effort to try to defuse this conflict so that it doesn't turn into a real war, but of course there are two sides to that," Merkel told the German parliament, noting that the head of the EU's executive Commission, Jean-Claude Juncker, will soon travel to the U.S.

She added that the good functioning of the world economy depends on countries working together as partners, and also questioned the value of measuring surpluses and deficits by trade in goods alone. If digital services were included, she said, it's likely that the US would have a trade surplus with Europe.

"It is almost old-fashioned only to count goods and not to count services," she said.

The US is also pressing Germany over what it considers insufficient defence spending ahead of NATO's July 11-12 summit in Brussels. In 2014, NATO allies agreed to stop cutting defence budgets, start spending more as their economies grew and move toward a goal of devoting 2 per cent of GDP to defense within a decade.

Germany's current spending amounts to 1.24 percent of GDP. Merkel said that, though spending is rising, "relative to what others are doing in terms of their gross domestic product, that is far from sufficient."

She added that "that is why we have committed to spend 1.5 percent of gross domestic product for this by 2025," and defended Germany's position.

"Germany is a reliable partner in NATO," Merkel said. "We are the second-biggest troop provider, we participate in many missions, and Germany will remain a reliable partner in NATO." In a message to skeptics at home, she added that "we can't act as though the issue of defence weren't a pressing one in our time.