rethink@ (Adds update on markets, comment from WTO chief)
WASHINGTON, March 5 (Reuters) - U.S. President Donald Trump increased pressure on Canada and Mexico over trade on Monday, saying the two could avoid being caught in his planned hefty tariffs on steel and aluminum if they ceded ground in talks on a new NAFTA trade deal.
Trump's determination to push ahead with a 25 percent tariff on steel imports and a 10 percent duty on aluminum has prompted threats of retaliation from the European Union, Canada, China and Brazil among others.
It has roiled world stock markets as investors worry about the prospect for an escalating trade war that would derail global economic growth. Stocks across the globe rose on Monday, however, after four days in decline as investors saw the tariff threats as a U.S. negotiating tactic and not a done deal and as pressure grew on Trump to back off.
Trump's planned steel and aluminum tariffs, announced on Thursday, have also met resistance from some senior figures in his own Republican Party.
House of Representatives Speaker Paul Ryan, a Republican whose state of Wisconsin would be hit by proposed European counter-tariffs on Harley Davidson motorcycles, urged the White House on Monday not to push ahead with the action.
Fellow Republican Kevin Brady, the top House lawmaker on trade, said American consumers should not be forced to pay more for goods.
Trump has been unmoved by lobbying from lawmakers, leading companies and industry groups since he first announced the measure. If anything, he has repeatedly upped the ante.
"We're not backing down," Trump said during a White House meeting with Israeli Prime Minister Benjamin Netanyahu. "I don't think you're going to have a trade war," he added, without elaborating.
The president warned on the weekend he would hit back with tariffs on German automakers in the event of EU retaliation. In Europe, shares in German car giants Volkswagen AG and BMW recovered from earlier losses. German car companies urged policymakers on Monday to avoid a trade war with the United States "at all costs."
Trump was expected to finalize the planned tariffs later in the week, posing a tough challenge for U.S. Trade Representative Robert Lighthizer, Canadian Foreign Minister Chrystia Freeland and Mexican Economy Minister Ildefonso Guajardo. They were meeting in Mexico City on Monday to wrap up the latest round of discussions on revamping the 1994 North American Free Trade Agreement.
"Mexico shouldn't be included in steel & aluminum tariffs. It's the wrong way to incentivize the creation of a new & modern NAFTA," Guajardo said on Twitter. Canadian Finance Minister Bill Morneau said the country was negotiating on NAFTA with a partner that has "changed the terms of the discussion."
Trump has touted the tariffs as a way to revive the U.S. steel and aluminum industries, in keeping with his promises both on the campaign trail and in the White House that he will seek deals that better favor American workers.
That has included the threat that Washington will withdraw from NAFTA if it is not satisfactorily renegotiated. He withdrew from a proposed Pacific trade pact on his first day in office in January last year.
The head of the World Trade Organization warned of a real risk of triggering an escalation of global trade barriers and a deep recession.
"We must make every effort to avoid the fall of the first dominoes. There is still time," WTO Director General Roberto Azevedo told the heads of WTO delegations at a closed-door meeting in Geneva.
In another comment on the NAFTA talks on Monday, Trump reprised two running criticisms of Canada and Mexico. Last year, Trump came close to withdrawing from NAFTA after he visited American dairy farmers in Wisconsin who said Canadian rules discriminated against U.S. milk exports. Canada responded at the time by saying the United States in fact ran a dairy surplus with Canada.
"Also, Canada must treat our farmers much better. Highly restrictive. Mexico must do much more on stopping drugs from pouring into the U.S. They have not done what needs to be done. Millions of people addicted and dying," Trump tweeted.
The Mexican and Canadian ministers at the NAFTA talks were likely to press Trump's trade envoy for more details on how their countries could be excluded from the blanket tariffs.
In Washington, aides scrambled to meet Trumps demand for the paperwork to be completed for a formal announcement this week. The exact timing was unclear as the tariff documentation had to be drafted and go through a variety of reviews, a process that takes days, an administration official said.
There was always a chance that Trump could amend his initial announcement to take account of the concerns expressed about it, said a source familiar with the internal debate at the White House.
(Reporting by Susan Heavey and Adriana Barrrera Additional reporting by Steve Holland, Eric Walsh and Susan Heavey in Washington; Adriana Barrera, Sharay Angulo, Lesley Wroughton and David Ljunggren in Mexico City; Rodrigo Campos in New York; Tom Miles in Geneva Writing by David Chance and Frances Kerry Editing by Andrea Ricci and Peter Cooney)