Sen. John McCain listens to a reporter's question during a news conference on Capitol Hill in Washington, Wednesday, Jan. 7, 2009. (Susan Walsh/Associated Press)The U.S. Senate rejected an amendment put forward by Republican Senator John McCain to strip the "Buy American" provision from the huge U.S. stimulus bill while agreeing to soften the language that had given rise to concerns of pending trade wars.

McCain's amendment had stated that the "utilization of funds appropriated or otherwise made available by this act shall not be subject to any 'Buy American' requirement." It was voted down 65 to 31 on Wednesday night.

The Senate, however, agreed to water down the language to include a requirement that indicates international trade agreements cannot be violated as a result of the "Buy American" provision.

The Senate agreed to back down on the clause after members voted to give a tax break of up to $15,000 to homebuyers in hopes of revitalizing the housing industry, which was a victory for Republicans.

Earlier in the day, McCain had said that he felt the protectionist language was "ignoring the lessons of history."

"We can’t have this kind of protectionism. It hasn’t worked in the past. It won’t work now," he said.

The softer language comes as the Canadian government expressed cautious optimism on Wednesday that President Barack Obama would move to amend the provisions after indicating he doesn't want the measures, which are contained in an estimated $900 billion US stimulus package, to trigger an international trade war.

During a series of television interviews on Tuesday, Obama did not insist that the "Buy American" provisions currently being debated in Congress be removed from the stimulus package altogether.

"But 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," Obama said.

But some U.S. legislators said they would not have allowed the legislation to move forward without the "Buy American" clause.

"I have no belief that it will be taken out or weakened," said Indiana Democrat Pete Visclosky following the vote.

"If it's not in, I'm not supporting this package and I'll bring a lot of votes with me," said Minnesota Democrat James Obestar.

The House of Representatives has already passed its own version of the bill, which contains a requirement that all steel and iron used in the package's infrastructure projects be U.S.-made.

The Senate bill, currently being debated, goes even further, stating that any goods used for those projects receiving funding from the stimulus plan be made in the U.S.

PM encouraged by Obama's remarks

Prime Minister Stephen Harper reads quotes from U.S. President Barack Obama during question period in the House of Commons on Wednesday. (Adrian Wyld/Canadian Press)Earlier in the day, Prime Minister Stephen Harper said he had been "very encouraged" by the president's remarks.

"The president also recognized the very real risk of promoting a trade war which would be in the interest of no country, including the United States," Harper told the House of Commons in French.

Canada has argued the provisions violate international trade agreements, including the North American Free Trade Agreement, and that it could stifle global economic recovery.

Trade Minister Stockwell Day said Wednesday he believes Obama's statements show Canada's fierce lobbying efforts against the provisions are working.

"At almost every key level of the administration, we're getting feedback that they're not just hearing us, but that something needs to be done," Day told reporters after a meeting of the Conservative caucus in Ottawa.

"That seems to be starting to resonate at the elected level."

But Day also warned that Canada's trade relationship with the United States was not "out of the woods" yet.

"I certainly can't predict what this is going to do with the vote," he said.

'Keep the pressure on': Rae

President Barack Obama, flanked by the official portrait of former president George H.W. Bush, speaks at the White House on Wednesday. (Ron Edmonds/Associated Press)Liberal foreign affairs critic Bob Rae called Obama's remarks "positive," but said Canada cannot afford to let up on its efforts to sway lawmakers in Washington.

"We have to keep the pressure on, as Canadians, to make sure that there’s a clear understanding of the impact that this is having across the world," Rae told reporters on Wednesday.

"No country is more affected by this legislation than Canada."

Despite the smaller scale of its economy, Canada is not powerless against the threat of protectionism from south of the border, Liberal finance critic John McCallum said.

"There are many people on the American side of the border who have the same interests as Canadians," he told reporters.

"The little guy doesn't usually want to start a trade war with the big guy, right? But at the same time, Canada has energy. Canada has other assets that are not unimportant."

Bloc Québécois Leader Gilles Duceppe said he hopes Obama and the U.S. Congress will act to change the provisions and put forward a modified proposal "respecting the spirit" of its signed treaties under the World Trade Organization and NAFTA.

The bailout bill is meant to help pull the U.S. out of recession by stimulating the economy and creating jobs.

Michael Wilson, Canada's ambassador to Washington, sent a letter this week to U.S. Senate leaders warning of the dangerous consequences the provisions could spark.

Liberal Leader Michael Ignatieff suggested on Tuesday that Harper call Obama personally over the matter.

Steelworkers make case

The United Steelworkers of America pleaded Canada's case for an exemption from the provisions.

"Because we are an international union, and because Canadian and U.S. manufacturing is so integrated, we encourage you and other members of the steel caucus to approach your counterparts in Canada to discuss a co-ordinated approach," the union's Canadian-born president, Leo Gerard, said in a written submission to the congressional steel caucus.

Such an approach would allow "the North American industry to strengthen its ability to create and preserve these good jobs in both countries," Gerard said.

It's Chinese steel, not Canadian steel, that's the intended target of the provision, he added.

With files from the Associated Press and the Canadian Press