WHISTLER, British Columbia (Reuters) - Canadian municipal leaders threatened to retaliate against the “Buy America” movement in the United States on Saturday, warning trade restrictions will hurt both countries’ economies.

The Federation of Canadian Municipalities endorsed a controversial proposal to support communities that refuse to buy products from countries that put trade restrictions on products and services from Canada.

The measure is a response to a provision in the U.S. economic stimulus package passed by Congress in February that says public works projects should use iron, steel and other goods made in the United States.

The United States is Canada’s largest trading partner, and Canadians have complained the restrictions will bar their companies from billions of dollars in business that they have previously had access to.

“This U.S. protectionist policy is hurting Canadian firms, costing Canadian jobs and damaging Canadian efforts to grow our economy in the midst of a worldwide recession,” said Sherbrooke, Quebec, Mayor Jean Perrault, also president of the federation that represents cities and towns across Canada.

The municipal officials meeting at the federation’s convention in Whistler, British Columbia, endorsed the measure despite complaints by Canadian trade officials.

Trade Minister Stockwell Day told the group on Friday that Ottawa was actively negotiating with Washington to get the “Buy American” restrictions removed.

The measure’s supporters agreed to modify it slightly by suspending implementation for 120 days, in order to give Canadian trade officials and U.S. critics of the “Buy America” rules more time to work on the issue.

‘UNINTENDED CONSEQUENCES’

The only Canadian community to enact an anti-“Buy American” purchasing rule so far is Halton Hills, Ontario, where a major employer, Hayward Gordon, is worried about losing its access to the United States.

The company’s water treatment equipment includes parts that are produced in the United States, and critics of the “Buy American” rule say that is an example of how the restriction could end up costing U.S. jobs.

“Leaders in the United States have to understand this could have unintended consequences,” said Clark Somerville, acting mayor of Halton Hills, which sponsored the measure approved by the federation delegates.

Some Canadian communities complained any retaliation effort could have unintended consequences of its own, including driving up the cost of infrastructure projects being considered to help stimulate Canada’s economy.

“We as local officials have a responsibility to get the best possible deal we can for taxpayers,” said Jim Stevenson, a city alderman in Calgary, Alberta.

Halton Hills councilor Jane Fogal acknowledged the views of Canada municipal officials will likely carry little weight with the American public, but she hoped it would at least make them take notice of the issue.

“We want Americans talking to Americans,” she said.