Bush backs down on steel

MAYBE President Bush does listen to his overseas allies after all. His decision to lift destructive tariffs against steel imports was being portrayed in Britain last night as a victory for the Blair government and its 'solid fight' against tariffs.

Certainly, it will bring much-needed relief to the UK steel industry that has seen exports plummet by 100,000 tonnes since the tariffs - designed to protect a million American jobs - were imposed in 2001.

But there are other good reasons for the White House reversal. You cannot preach free trade to China and Latin America and demand an end to their textile dumping, and defy the World Trade Organisation (WTO) at the same time. The US, as much as Europe, needs the WTO to enforce trade rules and keep international markets open.

The electoral arithmetic of the steel tariffs was not as clever as it first looked. More income was likely to be lost in steel-consuming states such as Michigan, home of America's car industry, as was to be gained in Pennsylvania and Ohio, the great steel-producing states. Moreover, the carefully contrived European retaliation of duties on items such as citrus, critical in Florida's electoral arithmetic, were cancelling out any political benefits.

What really may have convinced the President that free trade, not protectionism, is the answer to America's poor image in the world is the US upturn's vibrancy.

The whoosh in output, the sharp rise in productivity, the confidence of consumers as the holiday season gets into full swing and the creation of new manufacturing jobs - for the first time since the turn of the Millennium - have underpinned White House confidence in recovery prospects.

There will be squeals from US steel unions. But there will be immense relief elsewhere. Corus shares, which have jumped strongly since last month's fundraising, climbed again on the Bush decision. What is bad news for America's steel lobby is good news for global recovery.

Pain postponed

MERVYN King and his merry band at the Monetary Policy Committee (MPC) have given the people of Britain a festive reprieve. But no one should count on interest rates staying at 3.75% for long.

The Bank quite rightly held its fire in December after the quarterpoint rise in November. The new higher mortgage rates and direct debits are only just arriving on the nation's doormats, making it impossible so far to assess the impact on the housing market.

Moreover, the Bank is reluctant to raise rates ahead of a big economic statement of the kind we will get next Wednesday in the Pre-Budget Report. This year's report is particularly significant for monetary policy.

The Chancellor is expected to use it to unsheathe his switch to targeting inflation through the new harmonised index of consumer prices (HICP) borrowed from Europe. This will be tricky. The new measure shows a less toxic inflation rate than the present measure. So the MPC will have a fair amount of explaining to do if it raises rates, given that HICP will be running at below the putative 2% target.

Second, the Bank will want to see how the market reacts. Higher levels of public borrowing will inevitably be unveiled. In a Reuters poll, economists see net borrowing surging to £32bn this year against the Budget's £27bn.

Higher government borrowing comes at a time when the overall economy is improving. The British Retail Consortium reports that shop prices are picking up after six years of stagnation. Manufacturing and business surveys also show a strengthening economy.

Most critical is the boost from overseas, with the American economy zooming away at an 8.2% rate in the third quarter. All this is going to put upward pressure on interest rates in early 2004.

A strong pound may allow the Bank to postpone the evil decree for a couple of months. Then it will be belt-tightening time.

Probe powers

THE idea of empowering investigators to gain access to company documents without a warrant is one of the most significant powers in the new Companies Bill sent to the Lords.

From now on firms and directors who refuse to co-operate could be held in contempt of court.

This is all fine and shows a government determined to clamp down on corporate wrongdoing. But as we know from bitter experience, it is not the powers that matter but the determination of corporate policemen and the speed of the prosecuting authorities.

On both counts, British financial justice is sadly lacking.