Australia warns of trade war over U.S. protectionism

CANBERRA (Reuters) - Australia condemned the "Buy American" provisions in the United States stimulus measures on Thursday, warning the move to protect U.S. iron and steel makers would lead to a retaliatory trade war.

The U.S. Senate on Wednesday voted to soften the "Buy American" plan to ensure the provisions of the $900 billion stimulus bill remained consistent with U.S. trade agreements.

But Australian Trade Minister Simon Crean said the U.S. Senate had made the wrong decision by voting to keep the "Buy American" provisions in the stimulus bills.

"This is the wrong course of action, they have got to reverse their decision," Crean said in a statement. "It will result in retaliatory action, it will result in a trade war."

Australia is a major iron and steel producer and a strong advocate of free and open trade. Australia has a standing free trade agreement with the United States, and last year exported A$484 million ($314 million) worth of steel to the U.S.

Crean said other nations would hit back at the U.S. if the "Buy American" clause remained, undermining the benefits of President Barack Obama's stimulus measures.

He said Australia was also examining the "Buy American" to see if it had any impact on the Australia-U.S. free trade agreement.

($1=A$1.54)

(Reporting by James Grubel; Editing by Jeremy Laurence)