UPDATE 1-Merkel, Xi agree to work on steel overcapacity within G20

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BERLIN, March 17 (Reuters) - German Chancellor Angela Merkel and Chinese President Xi Jinping discussed overcapacity in world steel markets and agreed on Saturday to work on solutions within the framework of the G20 group of industrialised nations, Merkel's spokesman said.

In a telephone discussion, the two newly reelected leaders emphasised close ties between the two countries, both facing planned U.S. steel and aluminum tariffs, and agreed to deepen their strategic partnership, Steffen Seibert said in a statement.

They also underscored the importance of multilateral cooperation on global trade, a pointed response to an accelerating shift away from multilateral action and institutions by the United States under President Donald Trump.

U.S. officials have said they will seek to work with "like-minded" countries at the Group of 20 finance leaders meeting early next week in Argentina, to push back against China's state subsidies and investment policies.

The Merkel-Xi call came amid tensions between the United States, Europe and China over U.S. tariffs, and China's rejection of U.S. legislation encouraging an exchange of officials between the United States and Taiwan.

China considers self-ruled and democratic Taiwan to be a wayward province ineligible for state-to-state relations.

Merkel and Xi "discussed the problem of global overcapacities in the steel market and backed continued efforts to work toward solutions in the framework of the G20 Global Forum (on Steel Excess Capacity)," Seibert said, referring to a body initiated at the G20 summit in Hangzhou, China in 2016.

"In this regard, they emphasised the importance of close multilateral cooperation on trade," he said.

Trump has criticised both Germany and China for their trade surpluses with the United States since taking office in 2017.

Merkel on Saturday said Germany's trade surpluses were narrowing due to rising domestic demand, and the government would continue to try to support that trend.

German Economy Minister Peter Altmaier will visit Washington this week to press for an exemption from U.S. steel and aluminum tariffs as part of a broad push by the European Union to reverse the U.S. sanctions.

German Finance Minister Olaf Scholz will discuss the issue at a G20 meeting in Argentina with U.S. Treasury Secretary Steven Mnuchin.

Merkel said on Friday the planned U.S. tariffs violated the principles of the World Trade Organization and the dispute should be resolved via talks if possible.

Seibert said Merkel invited the Chinese government to visit Berlin for official government consultations, and Xi also extended an invitation for Merkel to visit China. (Reporting by Andrea Shalal Editing by Richard Balmforth and David Holmes)