By Jean-Baptiste Vey and William James
LA MALBAIE, Quebec (Reuters) - German Chancellor Angela Merkel on Friday floated an idea to set up a mechanism to resolve trade differences with the United States and prevent future ones, a French official said as consensus appeared to elude G7 leaders at a summit in Canada.
But expectations for any breakthroughs at the two-day Group of Seven meeting in La Malbaie, Quebec, are low. "It's highly unlikely there will be a final communique," a G7 official said on condition of anonymity.
Washington's trading partners are angry about U.S. President Donald Trump's decision last week to impose tariffs on steel and aluminium imports from Canada, the European Union and Mexico. The U.S. move has prompted retaliation by some countries.
Europe, Canada and Japan are largely united in opposition to Trump's protectionism while trying to find ways to bridge the divide and avoid rupturing the G7, which in its 42-year history has tended to seek consensus on economic and other issues.
The official described Merkel's suggestion as a "shared assessment and dialogue" mechanism, but gave no further details.
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Merkel's proposal was strongly supported by other leaders at the meeting, the official said, adding that European Commission President Juncker said he was ready to invest personally in it.
Canada, the summit host and the nation that has borne much of the brunt of Trump's trade fusillades in recent days, is holding out hope that progress can be made on less controversial issues such as gender equality and economic growth.
Asked whether Canadian Prime Minister Justin Trudeau's team was engaged in frantic damage control, a Canadian government official said it was always clear there would be disagreements at the summit over trade and relations with Russia.
Trump set the tone before leaving Washington on Friday.
"We're going to deal with the unfair trade practices. If you look at what Canada, and Mexico, the European Union - all of them - have been doing to us for many, many decades. We have to change it. And they understand it's going to happen," Trump said.
He plans to leave the summit four hours earlier than originally planned to fly to Singapore to meet with North Korean leader Kim Jong Un, the White House said.
That means he will have left Canada by the time the other leaders begin closing news conferences likely to be laden with criticism of Washington's trade and diplomatic policies.
While the G7 chiefs have largely praised Trump for his efforts to stabilize the Korean peninsula, they are unhappy he pulled out of an international agreement designed to limit Iran's nuclear ambitions.
INVESTORS NERVOUS
Although Trump says his tariffs are necessary to protect U.S. industry and workers, Canada and the EU have denounced them as illegal. Canada has proposed levies on a range of U.S. goods next month and the EU has pledged its own retaliatory measures.
That has financial markets worried about tit-for-tit escalation that could tarnish an overall rosy global economic outlook.
Financial markets have been largely subdued in their response to the summit so far, with stocks trading in tight ranges either side of unchanged and bond yields flat. The dollar was mixed, gaining modestly against the euro and dipping against the yen and Canadian dollar . "Headline risk is elevated into the G7 leaders' summit as market participants focus on trade and President Trump," said Shaun Osborne, chief currency strategist at Scotiabank in Toronto. Investors are also concerned about the future of the North American Free Trade Agreement, a deal that Trump has frequently criticized and threatened to terminate. Canada and Mexico, the other members of the 1994 pact, have been frustrated by the slow pace of the talks.
(Additional reporting by Susan Heavey and Doina Chiacu in Washington and Jean-Baptiste Vey, Giselda Vagnoni, William James, Roberta Rampton, Jan Strupczewski, Will James, Andrea Hopkins and David Ljunggren in La Malbaie, Quebec; Writing by Paul Simao; Editing by Hugh Lawson, Jeffrey Benkoe and Susan Thomas)