* Trump seeks to protect U.S. producers
* EU says needs permanent exemption
* Germany says tariffs do not help either side
* Worldwide glut of steel, aluminium
* Steel overcapacity seen in China (Adds Trump tweet in third paragraph)
By Philip Blenkinsop
BRUSSELS, May 1 (Reuters) - The European Union's executive arm demanded a permanent exemption on Tuesday from U.S. steel and aluminium tariffs, saying U.S. President Donald Trump's decision not to impose such barriers for now prolonged business uncertainty.
The White House announced on Monday that Trump had extended a temporary reprieve from the tariffs for the EU, Canada and Mexico until June 1, just hours before they were due to come into force. He also reached agreements for permanent exemptions for Argentina, Australia and Brazil, it said. Tuesday, Trump tweeted on trade: "...it will all get done. Great Potential for USA!"
The European Commission, which coordinates trade policy for the 28 EU members, acknowledged Trump's decision but said the bloc should be permanently exempted from the tariffs since it was not the cause of overcapacity in steel and aluminium.
"The U.S. decision prolongs market uncertainty, which is already affecting business decisions," the Commission said.
Trump has invoked a 1962 trade law to erect protections for U.S. steel and aluminium producers on national security grounds, amid a worldwide glut of both metals that is largely blamed on excess production in China.
Germany, whose trade surplus has attracted criticism from Trump, said it expected a permanent exemption. am firmly convinced that in the interests of jobs in Germany, in Europe and in the USA, we need a long-term provision and that raising tariffs is the wrong way," German Economy Minister Peter Altmaier said, urging more talks with Washington.
"We need fewer, not more duties in global trade," he said.
France said it agreed there was overcapacity in the steel and aluminium industries but said the EU was not to blame and should be exempted permanently from the tariffs so the overcapacity issue could be addressed in talks. are ready to work with the USA and other partners to deal with those issues, and to develop fast and appropriate solutions," the French finance and foreign ministries said.
EU business federation BusinessEurope called the extended respite positive, but said companies needed predictability.
Germany's DIHK Chambers of Commerce and Industry said the delay did offer the opportunity to defuse the trade conflict.
FRICTIONS
Britain's trade minister Liam Fox said he was delighted that Trump had decided to extend the temporary exemption, saying hitting British imports made no sense. tariffs, which have increased frictions with U.S. trading partners worldwide and prompted several challenges before the World Trade Organization, are aimed at allowing the two U.S. metals industries to increase their capacity utilisation rates above 80 percent for the first time in years.
European steel association Eurofer said the U.S. decision was welcome, albeit temporary, but said it was concerned a surge in imports already seen in the past few months could increase as countries redirected exports to the open EU market.
The European Union had consistently shown it was willing to discuss concerns about the openness of each other's markets, but would not negotiate under threat, the Commission said.
"Any future transatlantic work programme has to be balanced and mutually beneficial," it said in the statement.
EU Trade Commissioner Cecilia Malmstrom would continue talks with U.S counterparts, Commerce Secretary Wilbur Ross and Trade Representative Robert Lighthizer, the Commission said.
The Commission has said the EU will set duties on 2.8 billion euros ($3.4 billion) of U.S. exports, including peanut butter and denim jeans, if its metals exports to the United States worth 6.4 billion euros are subject to tariffs.
Economists say the stand-off could tip towards a trade war if Trump responds with further tariffs, such as on EU cars.
Trump has complained about the EU import duty of 10 percent on cars, compared with the U.S. rate of 2.5 percent. The EU has stressed that for other products, such as trucks, the United States has a higher tariff.
($1 = 0.8293 euros)