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The European Union warned the US yesterday against plunging the world into depression by adopting a planned “Buy American” policy, intensifying fears of a trade war.

The EU threatened to retaliate if the US Congress went ahead with sweeping measures in its $800 billion (£554 billion) stimulus plan to restrict spending to American goods and services.

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 US protectionist laws.

Last night Mr Obama gave a strong signal that he would remove the most provocative passages from the Bill.

“I agree that we can’t send a protectionist message,” he said in an interview with Fox TV. “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.”

Mr 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 Mr 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.

Mr Brown remained in favour of President Obama’s decision to inject cash into the economy. “We are supportive of the approach in the US in terms of their fiscal policy.”

The EU warnings came in letters to US political leaders in Congress, Timothy Geithner, the Treasury Secretary, and Hillary Clinton, the Secretary of State. Mr 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 defence against the crisis. They are expected to meet again in London in April.

“Failing this risks entering into a spiral of protectionist measures around the globe that can only hurt our economies further,” he wrote.

“Open markets remain the essential precondition for a rapid recovery from the crisis, and history has shown us where measures taken contrary to this principle can lead us.”

Under the “Buy American” clause passed by the US House of Representatives, American iron and steel must be used in construction projects that form part of the recovery plan. The US Senate wants to extend the scope of the clause before the Bill goes to the White House for approval.

The European Commission’s powerful trade department, a bastion of open markets formerly headed by Lord Mandelson, said yesterday that the “Buy American” clause was “the worst possible signal” that could be sent to world trade.

A spokesman said: “We are particularly concerned about the signal that these measures could send to the world at a time when all countries are facing difficulties. Where America leads, many others tend to follow.”

The Commission believes that the US move would violate international trade rules policed by the Geneva-based World Trade Organisation (WTO). The Commission also made clear that it was keeping an equally vigilant eye on protectionist moves within Europe as France prepared to insist that its motor manufacturers buy their parts only from French companies.

The White House later moved to clarify Mr Obama's remarks. Press secretary Robert Gibbs said that the president wanted the stimulus Bill to co-ordinate help for American workers with concerns for the world economy.

"The balance he wants to strike is to continue to get the economy going without unnecessarily starting something with our trade partners all over the world that will hinder [that process]."

Asked if that meant there would be a 'Buy American' component in the legalisation, Mr Gibbs replied: 'I'm not a trade lawyer."

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