US Senate Waters Down 'buy American' Clause Amid Trade War Fears

The US Senate has agreed to water down a "Buy American" clause in an economic recovery bill going through Congress over fears it could provoke a trade war.

The clause in the $825bn (£572bn) stimulus bill specifies that only US iron, steel and manufactured goods are to be used in projects funded by the recovery measures, but an amendment specifying that international trade agreements should be honored was approved.

The vote for the amendment came after the US president, Barack Obama, expressed concerns over the possibility of a trade war.

Last week, the US House of Representatives included the Buy American provision, which would have made the use of US-made iron and steel in public works projects in its stimulus package compulsory.

Earlier this week, the White House press secretary, Robert Gibbs, expanded on comments made by Obama in an attempt to reassure trading partners worried about protectionist provisions in the bill.

He said the president wanted to make sure that "any legislation that passes is consistent with trade agreements and doesn't signal a change in our overall stance on trade in these economic times".

In an interview, Obama said the stimulus package should not include provisions that were "going to trigger a trade war".

The Democratic party, however, is keen to ensure that US businesses receive the maximum benefit from the bill.

The Buy American plans provoked an internation backlash, sparking complaints from the EU, Canada and Japan.

Some countries threatened retaliation and warned that the measure could spark a trade war at a time when the world economy is already reeling.

They said the measures would break a promise made by world leaders in November not to resort to protectionism to prop up their economies.

Yesterday, the Japanese government sent a letter to the US secretary of state, Hillary Clinton, the head of the National Economic Council, Lawrence Summers, the Senate majority leader, Harry Reid, and the minority leader, Mitch McConnell, expressing its concerns.

In an interview with Fox News, Obama said he thought it would be a mistake "for us to start sending a message that somehow we're just looking after ourselves and not be concerned with world trade".

The House of Representatives has already approved the stimulus bill, while the Senate is considering its version.

The Senate bill clause states that none of the funds may be used for a project "unless all of the iron, steel and manufactured goods used in the projects are produced in the US", but the House bill is less restrictive.

After the Senate approves its bill, the two versions would have to be reconciled - a process that could lead to major changes.