Merkel also said she hopes for a "clear signal" in favour of free markets and the multilateral trading system from the July 7-8 meeting in Hamburg, arguing anew that protectionism can't solve the world's problems.
Merkel addressed Germany's parliament ahead of a meeting with European participants in the G-20 summit.
The Trump administration's "America first" approach to trade and other issues has caused widespread concern elsewhere, as has its decision to withdraw from the Paris accord on climate change.
She declared that "the Paris agreement is irreversible and it is not negotiable."
"We cannot expect easy talks in Hamburg" on the matter, Merkel said. "The disagreement is obvious, and it would be dishonest to gloss over it. I won't do that, in any case."
"As the G-20, we cannot ignore the challenge that climate change poses to all of us in the world," she said, adding that leaders must bear in mind the concerns of countries such as island nations most at risk from rising sea levels.
More broadly, she said, "anyone who thinks that they can solve the problems of this world with isolationism and protectionism is making an enormous mistake."
She argued that the G-20 a forum that rose to prominence in the wake of the global financial crisis is needed more than ever because countries working together can change things far more effectively than with uncoordinated national policies.
"My aim is for the G-20 to send a clear signal for free markets and against isolation, and a clear commitment to the multilateral trading system," Merkel said.
"We know that the summit and the days before are a big challenge for the citizens of Hamburg," Merkel told lawmakers.
"We know that there will be protests, and that is more than legitimate in a democracy. But I hope ... That these protests will be peaceful."
The G-20 comprises Argentina, Australia, Brazil, China, Germany, France, Britain, India, Indonesia, Italy, Japan, Canada, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the United States and the European Union. Also attending the summit will be the Netherlands, Norway, Spain, Guinea, Senegal, Singapore and Vietnam.
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