The Visible Hand

The Wall Street Journal reported that the Saudis had rudely rebuffed President Bush’s most recent request for an increase in oil production. This, of course, was not the first time Bush had asked. When he was in Riyadh in January, the President had more or less begged for a production increase and was gently told that his request would be taken under advisement. However, this time around the Saudis seem to be getting too impatient even to indulge the President of the United States. Oil Minister Ali al-Naimi apparently told the American party: “If you want more oil, you need to buy it.” Since the United States can’t buy anything today without first borrowing the money from China or Japan, this was al-Naimi’s way of saying “no, a thousand times no.”

But if that seemed like a pretty visible hand in what is quaintly called the oil market, it was only necessary to turn the page to see how the big boys play the globalization game in China. Boycott of Rio Could Bolster Smaller Rivals said the headline. Among iron ore suppliers, five firms account for most of the global business and of these Rio Tinto is number two. The headline referred to an action by the China Iron and Steel Association calling on its members not to buy from Rio, apparently in an effort to stimulate the sales of smaller rivals and thereby put downward pressure on prices. The opposite of monopoly, this is known as monopsony. Since there are no laws against it, it may even be compatible with WTO free trade rules even if Rio Tinto says it doesn’t feel like free trade.

Best of all was the story in the South China Morning Post about the exchange rate of the Chinese yuan. The U.S. Treasury, of course, had issued a major report just a few days ago denying the China manipulates its currency for the purpose of achieving a trade surplus. But the Post reported that “an influential mainland (Chinese) economist who preferred anonymity said some ministries were against any appreciation of the yuan versus the dollar because such a shift would slow export growth. He went on to say that these ministries were pressuring the central bank to slow the yuan’s rise and seemed to be having some success – success that obviously remained undetectable to the U.S. Treasury.

In any case, I put the papers down with a sigh of relief. It was really good to know that despite all the marketization of recent years, the visible hand is still at work in global markets.