The European Union warned the U.S. yesterday against plunging the world into depression by adopting a planned "Buy American" policy, intensifying fears of a trade war, the Times of London reported.
The EU threatened to retaliate if Congress went ahead with sweeping measures in the $800 billion stimulus plan to restrict spending to American goods and services.
The plan generally prohibits the purchase of foreign iron and steel for any stimulus-funded infrastructure project with the goal being to boost the U.S. iron and steel industries, which have been pummeled by the current recession.
Gordon Brown was caught in the crossfire as John Bruton, the EU Ambassador to Washington, said that "history has shown us" where the closing of markets leads - a clear reference to the Depression of the 1930s, triggered by U.S. protectionist laws.
The EU warnings came in letters to political leaders in Congress, Treasury Secretary Timothy Geithner and Secretary of State Hillary Clinton. Bruton urged them to respect the decision taken by the G20, the world's leading economic nations, in Washington last November to resist protectionism as a defense against the crisis. They are expected to meet again in London in April.
In an interview with FOX News, President Obama suggested he would remove the most provocative passages from the bill.
"I agree that we can't send a protectionist message," he told FOX News. "I want to see what kind of language we can work on this issue. I think it would be a mistake, though, at a time when worldwide trade is declining, for us to start sending a message that somehow we're just looking after ourselves and not concerned with world trade."
Brown does not want to join criticism of President Obama's stimulus proposals, which he sees as vindicating his own, but the Prime Minister remains strongly anti-protectionist, resisting calls yesterday for more safeguards for British workers.
Trade unions demanded a tightening of the law on the use of foreign workers as hundreds again walked out at the Lindsey oil refinery in protest at the hiring of Italian and Portuguese workers, and energy workers around the country followed suit.
A spokesman for the Prime Minister refused to condemn the "Buy American" clause. When pressed, the spokesman said that Brown had repeatedly made clear that he was opposed to protectionist measures. He would not say, however, whether Britain was lobbying the new Administration to drop the clause.