Buy American is meant to ensure that only US goods are used in public works
The EU has increased its pressure on the US to reconsider the "Buy American" clause in the $800bn (£567bn) economic recovery package now before Congress.
The clause seeks to ensure that only US iron, steel and manufactured goods are used in projects funded by the bill.
A European Commission spokesman said it was the "worst possible signal".
However, German Chancellor Angela Merkel said President Obama had assured her the US would not follow protectionist policies.
"He stressed that," she said.
The rescue plan has already been approved by the US House of Representatives and is under discussion in the Senate this week, who could sign it off before the weekend.
The EU spokesman said Europe would launch a complaint with the World Trade Organization (WTO) if the clause remained.
"There isn't a great deal of scope for doing much more, but if America went ahead and did this we would have to take it up with the World Trade Organization," the European Commission trade spokesman, Peter Power, told the BBC's Chris Mason in Brussels.
European and Canadian ambassadors to Washington have already warned that the clause could provoke protectionism and trigger retaliatory moves.
EU Ambassador to Washington John Bruton said that, if passed, the measure could erode global leadership on free trade.
"We regard this legislation as setting a very dangerous precedent at a time when the world is facing a global economic crisis," he said.
The White House has said it is reviewing the Buy American part of the stimulus bill, although Vice-President Joe Biden said last week that it was legitimate to have some portion of it in the final measure.
Barack Obama says he hopes the bill will be passed quickly
In addition to the opposition from the EU and Canada, some senior US Republicans have cautioned that the Buy American measure could start trade wars.
Mr Obama has urged the US Congress not to delay his stimulus plan over modest differences.
The Democratic leader in the Senate, Harry Reid, has said he hopes the stimulus can be approved by the end of the week.
It is unlikely that the package will be able to pass the Senate without Republican support.
The continuing wrangles over the Buy American clause come as hundreds of workers at UK power stations continue wildcat strike action in protest at the employment of Italian and Portuguese workers at a Total oil refinery.
HAVE YOUR SAY
At times like this of course a domestic government should encourage the consumption of home produced goods
Robert Feal-Martinez, Swindon, UK
Union leaders have denied accusations that the strikers are guilty of xenophobia.
Instead they say the UK workers are unfairly being denied the right to carry out work, because contracts are being awarded to foreign firms who bring in their own staff.
Despite this argument, the Italian and Portuguese governments have called for an end to the protests.
"We want to underline the responsibility of government to avoid this protectionist, xenophobic, nationalistic trend," said Portugal's Foreign Minister Luis Amado.