The United States Senate voted on Wednesday to soften a "Buy American" plan in its $US900 billion stimulus bill after President Barack Obama expressed concern the original language could trigger a trade war.
Senators, on a voice vote, approved an amendment requiring that provisions that upset Canada, the European Union and other trading partners be "applied in a manner consistent with US obligations under international agreements."
The underlying Senate bill had required that all public works projects funded by the stimulus package use only US-made iron, steel and manufactured goods - potentially putting America in violation of its commitments under the North American Free Trade Agreement and the World Trade Organisation's government procurement agreement.
Mr Obama, asked about the Buy American provisions in television interviews on Tuesday, said the US had to be careful not to include any provisions in the stimulus bill that could "trigger a trade war."
"I think it would be a mistake ... 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," he said on the Fox network.
But US steel companies and workers who have seen demand plummet as result of the recession have pressed hard for a Buy American provision, arguing US tax dollars to fund public works projects should be used to create American jobs.
The House of Representatives included a Buy American provision for US-made iron and steel in its $US825 billion stimulus package last week, triggering an intense effort by other business groups to have it removed or watered down before the final bill reaches Mr Obama's desk.
John Bruton, the European Union ambassador to the US, told Reuters in an interview this week that approval of the measure would damage Mr Obama's global leadership and could lead to a string of protectionist measures around the world.
Canada's ambassador to the US, Michael Wilson, also has urged Congress to drop the provision.
Lawmakers from steel-producing states insisted on Wednesday that the "Buy American" plan approved in the House remain part of the huge US economic stimulus bill.
"If it's not in, I'm not supporting this package and I'll bring a lot of votes with me," House of Representatives Transportation Committee Chairman James Oberstar, a Minnesota Democrat, said after a Congressional Steel Caucus hearing.