Trade war tactics, Part 2: Exploitation of an economy by a foreign monopoly

Trade war tactics, Part 2: Exploitation of an economy by a foreign monopoly.

by tonytran2015 (Melbourne, Australia).

Click here for a full, up to date ORIGINAL ARTICLE and to help fighting the stealing of readers’ traffic.

(Blog No. 1xx).

#trade war, #predatory pricing, #product dumping, #tariffs, #monopoly, #exploitation, #security,

Trade war tactics, Part 2: Exploitation of an economy by a foreign monopoly.

This blog describes in details the exploitation of a market by a foreign monopoly.

1. Dumping goods to become a monopoly in a foreign market.

A country C with a larger economy can subsidize the production of its goods (for example steel) for export to another country A with a smaller economy. Country C would use its deep pocket to make very low sale prices so that all its competitors in country A cannot sell any of their products and had to go bankrupt.

This blatant method of grabbing market may work with compliant vassal neighbors of a country C but may not be viewed favorably by any other sovereign country.

A number of steel manufacturers in Vietnam faces the danger of bankruptcy by such method of disruption [1,2,3,4].

The method would certainly be prevented in the USA where there is a Federal Trade Commission [5,6,7,8,9].

(Other examples can be found with food processing in Vietnam).

2. Achieving a monopoly by subtle taking-over of competitors.

With a deep pocket and enough patience a large monopoly producer/manufacture can enter a foreign market and gradually reduce the prices of its products so that its competitors can just make very small profits. After a few years, it can offer a take-over on its own terms (acquiring assets and market shares at low costs) to become an even more powerful monopoly without much backlash of public opinion in country A.

This type of take-overs would be favorably viewed by Anti-competition Authorities as a form of desirable “rationalization in a crowded market” and is usually approved [10-19].

3. Exploiting monopoly grip without losing it.

If any competitor set up new facilities in country A to produce same goods at local costs, country C would use its deep pocket to subsidize its reduced sale prices so that the new competitor cannot sell any of its products and had to go bankrupt.

On the other hand, while there is no competitor, country C can sell its goods to country A at considerably higher prices than could be justified if using local costs. With this artificially higher level of profit, country C can build up a war chest to fight against any new entry to its monopoly market in country A [20,21,22].

(Other examples can be found with Australian food producer market, Australian energy distribution market, Australian recycling industry).

4. Supply concern for manufacturing industries caused by dependence on a foreign monopoly.

As country A is wholy dependent on country C the latter can cause artificially periodic draught and floods of manufacturing supplies to force the former to hold massive stocks for its manufacturing base or to divest out of that manufacturing activity.

(Other examples can be found with, Phllipino fruit export market,Vietnamese trade through China)

5. Technological concern caused by dependence on a foreign monopoly.

Besides giving country C the option to raise or lower prices at their convenience to exploit its citizens, country A also face the risk of having C setting the standards for its food and technology [23].

Country C may also throttle the economy of country A by supplying it with only some of its needed raw and specialty materials/products [24-34].

6. Security concern beside trade and finance concern.

A country A has to worry about its military security if its communication and information technology, electricity power and strategic materials are supplied by foreign companies owned by its potential adversary [35,36].

7. Conclusions.

In peace time, traders from each country may carry their goods across the borders to other countries to make their own profits from the difference in prices. This cross border trade supplies people in different countries with goods at lowest prices and benefits all countries.

Unfortunately, there are always aggressive rulers who want to use their dominant trading positions to disrupt their neighbors.

The inescapable position is that each vulnerable nation needs to have a self-sufficient economy so that in time of imminent war that nation can close its border (for fear of attack, infiltration and espionage from its neighbors). It has been an established practice of closing the border when there is any possibility of war (This has also been a teaching by Sun Tzu in his ancient text Art of War [37]).

References:

[1]. https://en.m.wikipedia.org/wiki/List_of_countries_by_steel_production

[2]. https://en.m.wikipedia.org/wiki/History_of_the_steel_industry_(1970%E2%80%93present)

[3]. http://vietnamnet.vn/vn/kinh-doanh/dn-thep-pha-san-ma-khong-dam-cong-khai-89828.html

[4]. https://baodautu.vn/doanh-nghiep-thep-truoc-nguy-co-pha-san-d39873.html

[5]. https://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/single-firm-conduct/predatory-or-below-cost

[6]. https://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/antitrust-laws

[7]. http://www.adcommission.gov.au/Pages/default.aspx

[8]. https://en.wikipedia.org/wiki/World_Trade_Organization

[9]. https://www.wto.org/english/tratop_e/adp_e/adp_info_e.htm

[10]. http://www.abc.net.au/news/2017-10-24/chinese-investors-sink-teeth-into-pet-food-company/9081298

[11]. https://www.theguardian.com/business/2013/may/31/chinese-takeover-smithfield-shuanghui-food-supply

[12]. https://dealbook.nytimes.com/2013/07/10/lawmakers-have-concerns-over-chinese-takeover-of-smithfield/

[13]. https://www.businessinsider.com.au/china-alarming-food-problem-2017-6?r=US&IR=T

[14]. https://www.ft.com/content/66802104-18d3-11e8-9e9c-25c814761640

[15]. https://www.afr.com/news/politics/national/chinese-bastards-want-to-take-over-australia-palmer-20140818-j8vpx

[16]. https://www.telegraph.co.uk/news/world/china-watch/business/chinese-takeovers-of-overseas-brands/

[17]. https://www.weeklytimesnow.com.au/agribusiness/decisionag/china-to-become-biggest-foreign-owner-of-australian-farmland/news-story/ba27742491380f55568bc3d5ada296cb

[18]. https://www.businessinsider.com.au/chinese-outbound-acquisitions-concerns-2016-2?r=US&IR=T

[19]. https://www.smh.com.au/politics/federal/china-now-owns-10-times-the-amount-of-australian-land-it-did-last-year-20170930-gyrxia.html

[20]. https://www.bbc.com/news/business-34513287

[21]. https://www.telegraph.co.uk/news/2016/09/17/chinese-farmers-take-over-former-white-owned-farms-in-zimbabwe-t/

[22]. http://www.politicsweb.co.za/news-and-analysis/chinese-take-over-farms-stolen-from-whites-in-zimb

[23]. https://www.independent.co.uk/news/world/asia/china-fake-food-sector-unlicensed-products-knock-offs-supply-chain-contamination-public-health-a7880341.html

[24]. http://mobile.abc.net.au/news/2016-08-21/chinese-investment-in-the-australian-power-grid/7766086

[25]. http://fortune.com/2015/06/18/china-is-utterly-and-totally-dominating-solar-panels/

[26]. https://www.theguardian.com/environment/2017/jan/06/china-cementing-global-dominance-of-renewable-energy-and-technology

[27]. https://theconversation.com/gas-crisis-or-glut-why-japan-pays-less-for-australian-lng-than-australians-do-74438

[28]. https://www.bloomberg.com/news/articles/2017-09-27/now-one-of-the-world-s-energy-powerhouses-has-a-coal-squeeze

[29]. https://www.nytimes.com/2018/05/23/business/canada-china-aecon-block.html

[30]. https://www.cbsnews.com/news/china-u-s-m-a-its-a-one-way-street/

[31]. https://www.forbes.com/sites/douglasbulloch/2016/10/27/why-foreign-companies-are-increasingly-resistant-to-chinese-takeovers/#2734aa21145f

[32]. https://www.pbs.org/newshour/show/whos-behind-chinese-takeover-worlds-biggest-pork-producer

[33]. https://finance.yahoo.com/news/china-kill-qualcomm-takeover-nxp-030100535.html

[34]. https://www.bloomberg.com/news/articles/2018-03-27/u-s-said-to-weigh-use-of-emergency-law-to-curb-china-takeovers

[35]. https://www.businessinsider.com.au/national-security-issues-flagged-with-huawei-for-australian-5g-network-2018-6?r=US&IR=T

[36]. https://abcnews.go.com/International/wireStory/huawei-executive-warns-australia-risks-economy-5g-ban-56191847

[37]. Sun Tzu, The Art of War. First published in Chinese before 200BC.

Added after 2018 July 12:

[38]. https://asweetdoseofreality.com/2018/07/11/chinas-human-robot-labor-force-the-highest-rate-of-surplus-value-in-the-history-of-capitalism/

[39]. https://us-issues.com/2018/07/12/how-china-is-muscling-in-on-lithium-ion-batteries/

[40]. https://johnib.wordpress.com/2018/09/19/philippines-man-made-rice-crisis-worse-than-typhoon/

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