The controversial "Buy American" clause being considered as part of a massive U.S. stimulus bill has raised enough of a stir among America's trading partners that President Barack Obama has hinted it may have to be amended or reviewed.
In an interview, the U.S. president said any provision included in his stimulus bill that would violate World Trade Organization agreements, or signal protectionism, "would be a mistake right now."
"That is a potential source of trade wars that we can't afford at a time when trade is sinking all across the globe," Obama told ABC News.
"We need to make sure that any provisions that are in there are not going to trigger a trade war."
In a separate interview with Fox News, Obama said the U.S. "can't send a protectionist message," when putting together its stimulus package.
Many U.S. trading partners, including Canada and members of the European Union, have loudly objected to the provision that would, in part, prohibit the use of foreign iron ore and steel on infrastructure projects funded by the stimulus plan.
The economic stimulus plan was passed by the House of Representatives last Wednesday and is currently being debated by the U.S. Senate.
PM defends response to 'Buy American' issue
For the second straight day, the "Buy American" issue dominated early debate in the House of Commons as Prime Minister Stephen Harper defended his government's efforts to lobby against the contentious U.S. legislation.
Liberal Leader Michael Ignatieff accused the government of being too slow to react to the issue, pointing to the letter ambassador Michael Wilson sent to the U.S. Senate this week.
"This government's ambassador wrote too late, a letter to the American Senate relating to protectionist measures," Ignatieff said in French when addressing the House of Commons on Tuesday afternoon.
"Why did the government wait so long before acting? Where was the government's letter before the House of Representatives passed these measures?"
In response, the prime minister said that his government was on top of the "Buy
American" issue, which he said is of consequence for many countries in addition to Canada.
Harper said government representatives were "in consultation with their counterparts in the American and the Obama administration and...we believe that they share many of our concerns."
He further suggested the government was "on top of this issue weeks before the official Opposition even heard about it."
NDP Leader Jack Layton suggested that Canada should enact a "Buy Canadian" act of provision of its own when it comes to public infrastructure projects.
Harper said he would not be taking Layton's advice on the issue.
Wilson's 'very unusual' letter
Wilson's letter, which was described as being blunt and strongly worded, was sent to Senate Majority Leader, Democrat Harry Reid and minority leader Republican Mitch McConnell.
It warns that if the "Buy American" provision is included in the stimulus bill being pushed by the Obama administration, the U.S. "will lose the moral authority to pressure others not to introduce protectionist policies."
University of Ottawa professor and trade expert Debra Steger said "the very unusual" letter indicated to the U.S. government, in no uncertain terms, how concerned Canada is about the controversial "Buy American" provision.
"It's strongly worded for a purpose, basically to register very strong disagreement with the current bill that is in Congress right now at the moment," she told Â鶹´«Ã½net on Tuesday afternoon.
In Washington, Democratic House Leader Steny Hoyer said the concerns expressed in Wilson's letter were "justified."
The Canadian ambassador is "very concerned about the flow of economic activity between our two nations," Hoyer said, when speaking to reporters.
"So I think the concerns are relevant...I think the concerns are justified."
Many members of the U.S. business community have also spoken out against the "Buy American" clause, including The National Association of Manufacturers, which represents Sony, ExxonMobil and Dow Chemical, among other major corporations.
Association president John Engler said his organization is "very concerned that the new 'Buy American' provisions in the bill will potentially backfire on the United States and end up harming American workers and companies across the entire U.S. economy."
A report from the Peterson Institute for International Economics that was released on Tuesday suggested the "Buy American" clause might cause the loss of some 65,000 jobs, while creating only 1,000.
Premier says Canada must diversify its trade relationships
Saskatchewan Premier Brad Wall suggested Tuesday that Canada will need to cultivate stronger relationships with other trading partners, should the "Buy American" provision pass through the U.S. Senate.
Despite the fact that the Canadian and U.S. economies are tightly interwoven, Canada has plenty of other trading partners that it can sell its products to if Congress closes the door to American markets, Wall said.
"This is not 1930," he told CTV's Canada AM, while on a trade mission to Chicago.
"Canada has other countries, large countries that are interested in the products we have."
He pointed to the Smoot Holly Act, which Congress passed in 1930, that raised tariffs and cut off international trade in an effort to make Americans buy U.S. products and thereby stimulate the economy. The Act is credited with worsening the Great Depression, which dragged on for most of the decade.
"History's lessons are only lessons if we learn them, and the lessons here are pretty clear," Wall said.
With files from The Canadian Press
