Richard Kardas
“Meddling in the Markets: Foreign Manipulation” by Felix K. Chang and Jonathan
Goldman is about exactly what the title suggests, how other countries can cause damage to
domestic markets. The idea is that by targeting sectors of our economy in which we have a
strong reliance on foreign markets, the aggressing government could do significant damage to
the United States. Hampering our industry would in turn cause us to more vulnerable to attack.
While it is possible for foreign governments to impact markets in the United States, it is
unlikely that they could impact them as significantly as the author is suggesting. There are a
great deal of factors that influence domestic markets. Our gross domestic product or GDP is
70% consumption expenditures. These consumption expenditures do not include net exports.
Net exports is the section of the economy in which we typically run a trade defecit. Most
people worry about trade defecits harming out economy, but this is not likely to happen. The
reasoning behind this is because, as foreign countries invest in domestically run companies, the
domestic companies gain more capital to expand with. The domestic companies use this capital
to finance investments and in return grow. So in the long run our overall GDP will rise due to
the foreign investors. So trade defecits do not always carry negative implications for our
economy. Foreign countries of course gain interest on our treasury bills, so it benefits those
countries to hold our bills, whether they be friend or foe. Because of globalization the
economies of the world are so deeply intertwined that if a single country attempted to collapse
our market or another large country’s market than the resulting crash would cause world wide
market degradation. After the recent American stock and market failure it did not take very
long for the rest of the world’s economy to follow suit. Therefore mass market manipulation is
in all likelihood impossible. Even if a country could create such a disaster, they would certainly
be as damaged from it as their target, effectively making the action useless. This is because only
a company with enough global sway and integration could initiate something of this magnitude.
A small country without a large scale economy would simply not cause enough of a market
impact to create a collapse. So the only countries able to create a collapse are the countries
that are also large enough to be severely harmed by a collapse.
The author also mentions how a country could sell US treasury bills in order to cause a
market meltdown. This is also unlikely. After the United States treasury issues bills, those bills
are bought by foreign governments. Now the US Treasury has gained the profit from these bills
and is paying interest on them. If another country decided to sell these bills they would have to
find a buyer for them. The US would not necessarily have to be involved in this. In general
countries tend to be compliant with one another when it comes to economics. As previously
stated, due to the high volatility of markets and how interconnected economies are, it is better
for everyone to “play nice” on a global scale.
The author does present one way in which a foreign government could impact domestic
markets. This is through the use of raw materials and specific commodities. A perfect example
of this is something like oil. Oil is extremely useful and a basic requirement for nearly
everything in modern life. Companies use oil to fuel their business, to transport their goods,
and to produce. Consumers use oil to move from place to place, and to heat their homes. The
military requires vast amounts of oil to move around their machinery and to power boats,
planes, tanks, and more. By hoarding this resource and only allowing small quantities to be
sold, foreign governments can effectively drive up price dramatically by cutting supply. The flow
of oil could literally be forced into a trickle, causing the per barrel price to sky rocket. If the
price of oil is extremely high, not only would it cause damage to domestic markets via the
increase in production inputs, but it would also cripple our military. The price of maintaining
and maneuvering military craft would put too much strain on the American national budget. It
would actually cost too much for us to actually go to war with an enemy. A downside to this is
that the foreign government would lose a large portion of its own market and thus cut its own
revenue and funding ability. They could of course continue to sell to other countries, but those
other countries could always become a middle man for the United States for oil. In times of war
though, this might be a minor price to pay for crippling our ability to effectively fight. A scenario
like this is not without precendence either. During World War II, the American government cut
off raw resources from Japan. These resources included steel, iron scraps, oil, and other things.
This put a huge strain on the already faltering economy of Japan.
The author presents some methods of countering market manipulation. One such way
stated was to increase domestic oil production. There are also several preventive measures that
could be taken against something like this. The best possible way would be to develop an
alternate fuel source. Although this may be impossible at this moment in time, so alternate
strategies should be investigated, such as raw materials we possess that our enemies lack.
These materials could be used as bargaining chips, so if an enemy country cuts off our oil
supply, we could cut off a key resource in retaliation. I would be interested in seeing the
authors perspective on other alternatives. I would also be interested in seeing how the United
States could use market manipulation to affect other countries, especially because we are
primarily a service based economy.
Overall, it is unlikely another country would purposely cause a complete economic
failure of a rival due to the inherit side effects it would bring upon themselves. However, in
certain segments of the economy it is possible for other countries to influence us negatively.
We should be prepared to deal with those negative areas and defend ourselves from foreign
market manipulation.