There was an extraordinary development in Congress this week that got little attention. More than 100 Democrats have signed on as original cosponsors to legislation that could well start a major trade war. The bill effectively blocks all future U.S. trade negotiations, and could lead to retaliation by many of our major trading partners. And while it’s tempting to say that Barack Obama would not sign a trade bill that will ultimately be so costly and damaging to U.S. interests, the track record so far says he very well might.

Read more in my weekly column at the American Issues Project.

Remember how having a bunch of brilliant grown-ups in the White House was going to restore our tattered relations with key allies? And how the ’stimulus’ bill would create millions of jobs here in the United States?

Instead, the bill has sparked a trade war with Canada - one that will get worse if it is not addressed. And while the Obama team can offer only guesses as to how many ’stimulus jobs’ fit on the head of a pin, we can already point to 600 Pennsylvania steelworkers who are losing their jobs as a direct result of the bill:

Canadian and American business leaders joined forces Thursday to warn of the growing threat to prosperity in both countries due to the so-called Buy American provisions in President Barack Obama’s economic stimulus package.

“You can see billions of dollars that are in jeopardy, and tied to those billions of dollars are jobs,” Myron Brilliant, senior vice-president of international affairs for the U.S. Chamber of Commerce, told a news conference in Washington.

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U.S. exporters are currently trying to figure out how to continue to sell products to Mexico — our third-largest trading partner — notwithstanding tariffs imposed against them because the U.S. has violated NAFTA. It appears that a whole new range of companies may soon face the same problem, since the U.S. has also violated our NAFTA obligations toward our largest trading partner — Canada:

International Trade Minister Stockwell Day lashed out Friday at growing American protectionism, warning that if trade barriers continue multiplying, retaliatory action is inevitable.

Day, in Calgary to speak to the city’s chamber of commerce, said Ottawa is aggressively lobbying political, diplomatic and business leaders in the United States in a bid to quell `Buy American’ fervour.

He encouraged Calgary’s business community and provinces to join the federal effort.

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Barack Obama campaigned on a promise of ‘restoring good relations’ with key US partners, but it’s hard to tell from the way he’s governed so far. From evicting the bust of Winston Churchill from the Oval Office, to sacrificing East European allies for better relations with Russia and Iran, to starting trade wars with Canada and Mexico, Obama has done nothing but go renege on this commitment.

And now more pressure is being applied by the Secretary General of the World Trade Organization, Pascal Lamy. Lamy recognizes that a deal in the Doha Round of global trade talks could help many economies move toward growth. He also believes that US agricultural subsidies are a critical stumbling block:

Norway, Colombia, Singapore and Pakistan have banded together to push for an “urgently needed” Doha global trade deal, and to urge their trading partners to keep markets open in spite of the world recession.

“World trade has become one of the victims of the downturn,” the export-dependent countries and their economic allies said in a communique circulated to World Trade Organisation members on Monday, a copy of which was obtained by Reuters.

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I was listening to a podcast over the weekend about the dangers of to the international trade system from the global economic downturn. These concerns are becoming common. One academic thinks that many of these bailouts that we are talking out are in violation of international treaties and could spark a trade war:

I think [Obama] has to really use his rhetorical powers at some stage to try and say that openness is at stake, and openness which is really — it’s not just trade, which Carla was correctly focusing on — trade — we have Buy America; bailouts which are — you know, if they are sectoral subsidies, which there are, and they are even more sectoral in the sense that they are Detroit and within that probably just two firms — those are clearly actionable under the SCM agreement, so I don’t see how it’s going to be proven to be the ability of — (inaudible).

I’ve written before about a dangerous provision of the Omnibus appropriations legislation now under consideration in the Senate. The bill violates the U.S. commitment under NAFTA to allow Mexican trucking companies to operate in the U.S., so long as they meet all the standards to which U.S. companies and trucks are held. If Obama signs this measure into law, Mexico will have the right to retaliate against the U.S. - presumably by restricting exports from the U.S. to Mexico.

Barack Obama opposed the Mexico truck pilot program when he was in the Senate, but you might expect him to rethink his view now that he sits in the Oval Office. After all, he campaigned on a promise to restore good relations with our neighbors, and on a promise to restore economic growth. Picking a fight with Mexico now would be a very public renunciation of both those promises.

The Mexican government has not yet shown its cards; the Mexican Ambassador has merely stated that Mexico ‘will keep all its options open.’ One (subscription only) trade journal reports however, that Mexico will exercise its right to retaliate:

Mexico is threatening tough trade retaliation if Congress and the Obama administration move ahead with proposals that would ban Mexican truckers from travelling throughout the United States, as spelled out in the North American Free Trade Agreement (Nafta).

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Barack Obama and the Democrats swept to power on a promise of doing more to restore good relations with key trading partners. To that end we’re selling Eastern Europe out to Russia in a vain attempt to deter Iranian nuclear ambitions, and we’re giving UK Prime Minister copies of Toy Story. And when it comes to treaty compliance, Congressional Democrats are eager to stiff Mexico, and bring the U.S. completely out of compliance with a NAFTA requirement to allow Mexican truckers to operate in the United States:

PRESIDENT OBAMA seems to have resolved, for now, an incipient dispute with Canada over “Buy American” rules in the stimulus package. The law would have hurt Canadian steel exports to the United States, but, at the White House’s insistence, Congress appended language that blunted the worst protectionist consequences. Now, however, Congress has turned on Mexico, the United States’ other partner in the North American Free Trade Agreement. A $410 billion omnibus spending bill contains a provision that would pretty much kill any chance that long-haul freight trucks from Mexico could operate in the United States, as had been promised under NAFTA…

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