The Reds host arch rivals Manchester United in the Premier League this weekend in their second meeting of the season
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It will see the in-form Rashford come up against Alexander-Arnold, whose defensive abilities have been routinely questioned and have been exposed by the Red Devils forward before.
Saunders feels the right-back could struggle against his fellow England international, who has scored 25 goals this season and will be on the hunt for more at Anfield.
Speaking to Alan Brazil on talkSPORT Breakfast, the ex-Reds striker recalled a previous encounters between the two: "Turn the clock back - Rashford who is 19, Liverpool at Old Trafford.
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"[David] De Gea, it's a long ball down the middle of the pitch, goal kick. [Romelu] Lukaku jumps for a header with [Dejan] Lovren, Rashford runs from the left wing inside Trent and gets in behind him, flick on, he's in on goal.
"Trent gets back, recovers, Rashford has to slow him up and Trent lets him come inside on his right foot and bend it in the far corner. I thought, 'He's 19, he's got to learn from that, you should know Rashford is right-footed'.
"But Al, I'm sorry to say this, he still hasn't learned. I mean, we're five years on. Surely as a full-back, your first job is to defend.
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"He's brilliant going forward, his passing and his crossing are class. But the easy bit, defending, he can't do."
Former United striker Brazil insisted he isn't a fan of people 'hammering' Alexander-Arnold when he makes mistakes.
Saunders replied: "But at some point, if you're going to win a trophy, you come up against Real Madrid.
"Vinicius Jr gets inside him in the [Champions League] final. So it's alright going forward but have you got the tools to stop the world's best wingers? You've got to have the tools in your bag."
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Alexander-Arnold is part of a Liverpool side who have struggled this season, sitting sixth in the Premier League table.
Rashford scored in the reverse fixture earlier in the campaign, and could be set to haunt the Reds once again on Sunday.
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