Finance Minister Jim Flaherty looks on as World Bank president Robert Zoellick responds to a question after signing an agreement on the Global Trade Liquidity program in Ottawa on Tuesday. (Adrian Wyld/Canadian Press)

The head of the World Bank on Tuesday said he is against the "Buy American" policy, and warned Canada against retaliation.

Robert Zoellick, a former U.S. trade representative, said the policy won't help the interests of the U.S., but added that retaliation would damage Canada.

"The danger in this environment is you start to get tit-for-tat retaliation and it serves nobody's interests," he said.

"I think the ['Buy American'] provisions are mistaken actions. I don't think they serve U.S. taxpayers well in the recovery or in trade, but I think it would be a mistake to get to a posture where one is trying to limit one's market to the other market."

Zoellick's comments came on the same day that Trade Minister Stockwell Day said Canadian trade officials from across the U.S. are going to Washington, D.C., to tell American politicians that U.S. jobs could be lost if Canada retaliates against the policy.

Senior Canadian diplomats in Washington, along with 13 consuls general, are slated to meet with more than 75 members of Congress and their staff.

The "Buy American" provision gives priority to U.S. iron, steel and other manufactured goods for use in public works and building projects funded with taxpayer-funded recovery money.

Last weekend, in response to the "Buy American" provisions of the U.S. stimulus package, Canada's mayors narrowly passed a resolution Saturday that could potentially block U.S. companies from bidding on city contracts.

The resolution was passed at the Federation of Canadian Municipalities conference in Whistler, B.C., by a vote of 189-175.

The resolution says the federation should support cities that adopt policies that allow them to buy only from companies whose home countries do not impose trade restrictions against Canadian goods.

On Monday, Finance Minister JimFlaherty said protectionism would be bad for both Canada and the United States.

Zoellick made the comments in Ottawa during a press conference with Flaherty to discuss Canada's commitment of $200 million US to a World Bank program to support trade in developing countries.

With files from The Canadian Press