Patricia Hewitt, the Secretary of State for Trade and Industry, has raised the prospect of a trade war with the US over steel, on the eve of the next round of trade talks in Cancun, Mexico.
President George Bush has introduced tariffs of up to 30 per cent on imported steel - a move ruled unlawful by the World Trade Organisation.
The US is appealing against the ruling, but Ms Hewitt warned: "Assuming we win, we will have to look at whether we use compensating action in other areas." The European Commission has already drawn up a list of £1.3bn worth of possible sanctions on US textiles and farm produce.
The US is separately in dispute with Europe over its five-year ban on GM food products and is threatening to launch its own trade war.
With the next round of the Doha trade talks due to begin at Cancun on Tuesday, politicians are worried that these disputes will obstruct the main agenda - getting a better deal for developing countries.
"The disagreements we have with the US on steel and GM foods should not spill over into a trade war and poison the atmosphere of the Doha development round," Ms Hewitt said. "If we fail at Cancun then it would be disastrous for the whole world economy ... and [it would fail] to give the prospect of people moving out of poverty."
The steel tariffs have already hit Corus, the UK's largest steelmaker. The Anglo-Dutch company produces around a million tons of steel a year for the US. Some 520,000 tons are caught by the US tariff.
There are signs, however, that the US is considering lifting the tariffs, which are scheduled to run until March 2005. Some of Mr Bush's advisers, including his Treasury Secretary, John Snow, and Commerce Secretary, Donald Evans, are understood to have recently argued that the tariffs are damaging US industry. In particular, companies such as Caterpillar are having to pay more for steel.
A decision on whether to lift the measures could come after 19 September when Mr Bush will receive a report from the influential US agency, the International Trade Commission, on the tariffs.
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