Angela Merkel: US auto tariffs could start trade war

German Chancellor Angela Merkel has warned the Trump administration that hitting auto imports with new tariffs would have dire consequences.

”We now have tariffs on aluminum and steel and we have a discussion that is far more serious,” Merkel told German lawmakers on Wednesday. “This is taking on the contours of a trade conflict — I don’t want to use words that go any further. It’s worth every effort to try and defuse this so that this conflict does not become a war.”

President Donald Trump has threatened to place a 20% tariff on all European cars coming to the United States if the European Union doesn’t remove its own trade barriers.

Targeting cars would dramatically raise the stakes in the spat between Europe and its biggest trading partner. EU-US trade in goods and services is worth more than €1 trillion euros ($ 1.2 trillion) each year.

The European Union said earlier this week that America’s trading partners could retaliate against nearly $ 300 billion of US exports if the Trump administration decides to penalize automobile imports from around the world.

Related: EU warns Trump’s car tariffs threaten $ 300 billion of US exports

In May, the US government launched an investigation into imports of automobiles, including SUVs, light trucks and auto parts.

The type of investigation, known as Section 232, is meant to determine whether the imports are hurting US national security. It’s the same approach the Trump administration used before it slapped tariffs on steel and aluminum imports earlier this year.

The European Union has said the US investigation “lacks legitimacy, factual basis and violates international trade rules.” And it has argued that new tariffs on autos would damage the American economy.

On Wednesday, German business groups said that tariffs would harm auto industry investment in the United States. They said there are over 300 German automotive facilities in the United States, supporting nearly 120,000 jobs.

Instead of imposing tariffs, Merkel said the United States should work with its partners to find a multilateral solution that address its trade complaints.

”Germany will do everything to prevent the situation from escalating,” she said.