By Jean-Baptiste Vey and William James
LA MALBAIE, Quebec (Reuters) - German Chancellor Angela Merkel on Friday floated an idea to set up a way to resolve trade disputes between the United States and its allies, a French official said as consensus appeared to elude G7 leaders at a summit in Canada.
U.S. trading partners are furious over President Donald Trump's decision last week to impose tariffs on steel and aluminium imports from Canada, the European Union and Mexico as part of his "America First" agenda. Some have retaliated.
The official described Merkel's suggestion as a "shared assessment and dialogue" mechanism, but gave no further details.
The proposal, made at a meeting ahead of the two-day Group of Seven nations summit in La Malbaie, Quebec, was strongly supported by other leaders present, the official said, adding that European Commission President Jean-Claude Juncker said he was ready to invest personally in it.
Expectations for a breakthrough at the summit, however, are low, with U.S. allies focused on avoiding rupturing the G7, which in its 42-year history has tended to seek consensus on major issues.
"It's highly unlikely there will be a final communique," a G7 official said on condition of anonymity.
Merkel said it was not clear whether the group would issue a final directive, adding that failure to do so would be an honest reflection of the lack of agreement among Canada, the United States, Japan, Britain, Italy, France and Germany. The EU is also attending the summit.
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.
Trump and French President Emmanuel Macron had what was described by a French official as a "very cordial" discussion about trade and North Korea. The leaders had exchanged terse messages on Twitter ahead of the summit.
Merkel and Trump also had a brief conversation at the summit. Asked by reporters whether he would relent on tariffs, Trump looked at Merkel and said: "I don't know. Ask this great lady."
Trump's "America First" message to allies has hardened since he brought hard-charging national security adviser John Bolton on to his team.
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.
G7 chiefs have largely praised Trump for his efforts to stabilize the Korean peninsula, but they are unhappy he pulled out of an international agreement to limit Iran's nuclear ambitions.
INVESTORS NERVOUS
Canada and the EU have denounced the U.S. tariffs and Ottawa has proposed levies on a range of U.S. goods next month while the EU has pledged its own retaliatory measures.
"Canada will not change its mind when it comes to the illegal and absolutely unjustified application of tariffs on steel and aluminium," Canadian Foreign Minister Chrystia Freeland said on Friday.
The spat has financial markets worried about tit-for-tit escalation.
Financial markets have been largely subdued in their response to the summit. Stocks on global indexes mostly eased on Friday and the dollar <.DXY> was up slightly against a basket of currencies. [nL5N1TA4AC]Investors are also concerned about the future of the North American Free Trade Agreement, which Trump has threatened to terminate. Canada and Mexico, the other members of the 1994 pact, have been frustrated by the slow pace of talks to renegotiate NAFTA.
RUSSIA'S SHADOW
Relations with Russia also became an issue at the summit after Trump on Friday said the country should be allowed to again attend meetings with the G7, an idea that did not gain much traction at the meeting. Freeland said the Russia issue was not formally raised during the session.
Russia was suspended from what was then called the G8 in 2014 because of its annexation of Crimea from Ukraine. Trump said Russia should be readmitted, but even Moscow seemed to reject that suggestion.
"Russia is focused on other formats, apart from the G7," Kremlin spokesman Dmitry Peskov said in a statement reported by the government-controlled Sputnik news agency.
Merkel said EU countries at the summit agreed that the conditions to readmit Russia had not been met.
Trump's presidency has been clouded by a federal investigation into alleged Russian meddling in the 2016 presidential election, and possible collusion by his campaign. Both Moscow and Trump have denied the allegations.
G7 leaders will agree on Friday to share information and work with internet service providers and social media companies to thwart foreign meddling in elections in their countries, according to a draft summit commitment seen by Reuters.
(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)
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