The Chancellor said that she was keen to hold talks on the issue with America before acting, but she was ready to enforce a punishment against the US.
US President Donald Trump set import tariffs on Thursday of 25 percent on steel and 10 percent on aluminium, to come into force in 15 days, though Washington opened the way to some exemptions the following day after pressure from allies.
Mrs Merkel said: “If this unilateral action cannot be avoided, then we must think about how we can respond in a reciprocal fashion but I am first of all focusing on talks and there will be plenty of opportunities for them.”
The president announced last week that the United States would impose heavy tariffs on imported steel and aluminium, with some countries potentially exempted.
Amid fears of a global trade war, the European Union is among those seeking exemptions.
Over the weekend, Mr Trump argued that the US has been abused economically by the EU, saying they were “wonderful countries who treat the US very badly on trade”.
The EU urged Mr Trump not to head down “a dead end” road of protectionism and warned of a damaging trade war over his new steel and aluminium tariffs.
At talks in Brussels, economy ministers underlined that the EU supports free and open trade but that its 28 countries will respond if they are targeted by the US tariffs, which are set to enter force next week.
Mr Trump said his commerce secretary will be talking to the European Union about tariffs the US president argues have been unfair to America.
Mr Trump wrote on Twitter: “Secretary of Commerce Wilbur Ross will be speaking with representatives of the European Union about eliminating the large Tariffs and Barriers they use against the U.S.A. Not fair to our farmers and manufacturers.”
Mrs Merkel’s concerns over a trade war are echoed by French economy minister Bruno Le Maire.
He said: “We are worried (about) the possibility of having a trade war between the United States and the EU because we believe that there will be only losers. We believe that protectionism is a dead end.”
His Spanish counterpart Roman Escolano Olivares said: “Protectionism is always a political, a historical error.”
Mr Trump said last Thursday that he is slapping tariffs of 25 per cent on imported steel and 10% on aluminium. He temporarily exempted big steel producers Canada and Mexico – provided they agree to renegotiate a North American trade deal to his satisfaction.
He said other countries could be spared the tariffs if they can convince the US government that their steel and aluminium exports do not threaten American industry.
The EU rejected Mr Trump’s argument that the tariffs are required for national security reasons.
It has threatened to slap retaliatory duties on around 2.8 billion euro (£2.4 billion) worth of US steel, agricultural and other products like peanut butter and orange juice if it is not excluded from the tariff regime.
Amid uncertainty over who might be exempted, German finance minister Peter Altmaier appealed to reason, saying it is the “responsibility of everybody to keep international trade as fair and open as possible”.