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Obama in dilemma over stimulus bill

LESS than two weeks into office, United States President Barack Obama faces a dilemma over protectionist provisions in a massive economic stimulus bill: backing the measures could set off a trade war; opposing them could trigger a backlash from his supporters.

The choice involves "buy American" provisions attached to White House-backed stimulus legislation moving through Congress. They would require major public works projects to favor US steel, iron and manufacturing over imports.

Some Democratic law makers and interest groups allied to the president support the measures, but international allies and trading partners are warning that favoring US companies would breach US trade commitments and could set off tit-for-tat countermeasures around the world.

The two largest US trading partners already have spoken out against the measures. On Thursday, Canadian Prime Minister Stephen Harper expressed concern and the European Union warned that it would not "stand idly by" if such measures were passed. On Friday, Brazil's president Luiz Inacio Lula da Silva also criticized the measures.

In November, world leaders considering how to right the global economy pledged to avoid protectionism. But since taking office on January 20, Obama has said little on trade and has yet to nominate a trade representative. While campaigning, he said the Bush administration's strong support of free trade agreements should be moderated by including environmental and labor protection.

"The jury is out on how this administration is going on trade policy," said Steven Schrage, an analyst at the Center for Strategic and International Studies. "This will be a key test."

Asked about the protective provisions, White House press secretary Robert Gibbs said only that the administration is reviewing them.

The provisions are likely to find support among Americans outraged that money from an US$800-billion fund could go to foreign competitors.

"I believe that when taxpayer dollars are used, they should support the things produced here at home," Democratic Senator Byron Dorgan, author of one of the provisions, said.

Many analysts say the measures reflect the interests of small sectors over the larger US economy, which could suffer from reduced trade and higher steel prices.

"The result, according to my calculations, is that the United States will lose more jobs than it will gain," said Gary Hufbauer, an economist at the Peterson Institute for International Economics, a think tank. "We are going to poison the wells of world commerce, if we do this."

The provisions are in a bill already approved by the House of Representatives and a different version under consideration in the Senate. The Senate version states none of the funds from the stimulus may be used for a project "unless all of the iron, steel and manufactured goods used in the projects are produced in the United States."

The House version leaves out manufactured goods. Obama, who has argued that stimulus measures are urgent, is unlikely to block the passage of any bill approved by Congress. But he could press law makers to remove the protectionist measures before it is passed.


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