U.S. congressional leaders appear to be prepared to work with Canada to dampen the threat of protectionism between the world's two largest trading partners, Finance Minister Jim Flaherty said Wednesday.

Earlier, the finance minister met with several key senators, including former Democratic presidential candidate John Kerry, as well as House budget chairman John Spratt, on the financial crisis and trade issues.

"What I heard today was a willingness to work on this issue," he said in a conference call from Washington.

"[And] that Canada is viewed as having a special trading relationship with the United States."

But Flaherty gave no indication whether the congressmen he met, who were both Republicans and Democrats, were willing to lobby for a repeal of the so-called "Buy America clauses being inserted in billions of dollars of infrastructure spending programs."

The laws require lower-level governments to use American steel and manufactured goods exclusively in procurement that uses federal infrastructure dollars.

The laws do not contravene free trade agreements because the spending is being directed by states and municipalities, not Washington.

Flaherty said he tried to encourage the congressional leaders to help facilitate a dialogue between states, provinces and municipalities to stress the importance of not succumbing to protectionism.

"They need a level of understanding at the sub-national level of government that protectionism is something we want to avoid," he explained.

"This is the lesson of the 1930s, where a recession can be made worse by so-called populist protectionist measures being taken. One country takes a measure and then another country retaliates with a similar measure and the downward spiral begins."

The approach has not formed a part of the public discussions on the issue on either side of the border, since the protectionism is stemming from federal legislation compelling states and municipalities to discriminate against foreign contractors.

Recently, Canada's premiers called for a new agreement that would extend free trade to provincial, state and municipal levels in matters of government procurement, but envisioned negotiations taking place at the federal level.

Canadian mayors have passed a resolution advocating that municipalities discriminate against contractors from any country that discriminates against Canada, giving Ottawa and Washington 120 days to settle the issue.

Flaherty said he brought up the municipal resolution as an object lesson of what could happen if the issue is not resolved.

The minister said the congressional leaders were surprised by the extent of trade that exists between the two countries when the data was given to them. And he said they told him the Buy America laws were not directed at Canada.

Flaherty said Congress may need to change its laws, but that it was also important that sub-national governments get directly involved.