Daalder pointedly told Trump that "this is not a financial transaction, where NATO countries pay the U.S. to defend them" but instead is part of a country's treaty commitment.
Trump also reaffirmed the United States' "strong support" for North Atlantic Treaty Organisation but reiterated his position that North Atlantic Treaty Organisation allies need to "pay their fair share" for the cost of defense.
Regarding concerns about a trade war between the United States and Germany or Europe, Merkel said: "Our countries benefit when we work together well and fairly".
Donald Trump is once again chastising North Atlantic Treaty Organisation allies for not spending enough on defense, a somewhat troubling talking point of the president's that at one point led him to suggest the U.S.
However, she had close relations with Mr Trump's predecessors, Barack Obama and George W. Bush, and is likely to seek a strong working relationship with him despite major policy differences and wariness in Germany about the former NY businessman. Trump set the tone for his relations with Merkel during his campaign past year, saying her decision to allow refugees into Germany was a "catastrophic mistake" and suggested she was "ruining Germany".
During his campaign and after taking office, Trump said he would impose a 45 percent tax on imports from China, and that same on imports from Mexico.
Mrs Merkel needs to walk a diplomatic tightrope, building a relationship with Mr Trump without appearing to sacrifice her own values or disappoint her supporters as she prepares for an election at home seeking a fourth term as chancellor.
"We said nothing. All we did was quote a certain very talented legal mind who was the one responsible for saying that on television", Trump said.
Which is to say: The president of the United States just argued that it's perfectly appropriate for the White House to spread conspiracy theories that implicate close allies - so long as a 9/11 truther on Fox News spread them first.
Obviously, the United States, with the highest level of defense spending in the world, spends much more than that, 4.5 percent in 2015 and estimated to be about 3.8 percent in 2020. "We don't want victory; we want fairness".
The U.S. bugged Merkel's personal and official phones for more than a decade, beginning during a period of national security tightening in the aftermath of the 9/11 terror attacks.
These mistakes on Trump's end are hardly new.
Mr Trump backed Britain's departure from the European Union and has expressed scepticism of multilateral trade agreements. "You look at the deficits that we have and you look at all of the accumulation of debt".
Mr Trump has ruffled feathers in Germany by threatening its carmakers with tariffs and calling on Berlin to boost defence spending.
US Treasury Secretary Steven Mnuchin met with his German counterpart in Berlin on March 16 to discuss some of those issues, in what he said were "extremely productive" talks.
At one point a German journalist called Trump "isolationist", which seemed to rankle him.