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. 147).

#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]).






































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

Added after 2018 July 12:




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Bankers earn more than interest margin on secured loans.

Bankers earn more than interest margin on secured loans

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.39).


1. How much does a bank pay you?

When you deposit $100 CASH for a fix 1 year term at your bank you may be paid back $105 at the end of the year.

2. How much does the bank actually earn?

Suppose that some Mr. A may want to obtain a secured loan of $100 from the bank. He can obtain it provided he agrees that the bank can sell his $2000 motor-bike to get back its money if he does not repay the loan as agreed. Usually the bank charges Mr. A an interest of $5+$2 for 1 year loan. The bank bears no risk and they say that the extra $2 is their only profit.It does not actually give cash to Mr.A, but allows him to use something like a personal cheque book so that he can write cheques to pay others of up to $100.

Actually for each $100 of cash deposited, the bank makes 10 loans of that type to Mr.A. Each of the loan has its own security and is risk free. The total value of loans they give is thus 10×$100=$1000. (The ratio of deposited money over loan is typically 1 to 10 but it varies from country to country). The bank can do it as people usually just pass the personal cheques around like a kind of actual money, deposit them into their bank accounts and only 1 in 10 people actually demands cash from the cheque after a while!

The ratio of 1 to 10 is based on their average of millions of customers.

The different scenarios are given in the following.

If Mr.A borrows $100 cash from the bank and enjoys spending it then the bank makes $5+$2=$7 interest on the cash loan to him while it has to pay you $5 on interest and it only makes $2 as it claims.

But if Mr. A uses his cheque book then the bank can keep making other loans as long as the total value of the loans does not exceed 10 times the cash value it is holding. The following calculation shows how much the bank can make if the cash money stays with it for 1 year:

So the bank has 10 secured loans and earns 10×($5+$2)=$70. Its costs are only $5 interest payment to you, branch expenses and the salaries of its employees.
The worst case for the bank happens when all 10 out of 10 receivers of those personal cheques use them all for 1 year fix term deposits in the bank. In this case the bank pays out 11×($5)=$55 on deposit interests and collect 10×{$5+$2)=$70 on loan interests, and the margin of $2 takes on its meaning. However, this worst case rarely happens and even then the bank still makes $15 profit.

3. No bad debt problem.
In rough time such as during recession, maybe 10 out of 10 want to present every cheque to get real cash money. In such a case, the government would step in to limit cash withdrawals from banks to give banks time to disengage from their loans (This is a liquidity problem, not a bad debt problem).

Now you can see the real reason why India and a number of other countries simultaneously don’t want people to demand cash. They actually want to help their bankers (or banksters?) and may be preparing their economies for their own BIG DEPRESSIONS.

4. It is a nice earning hidden behind the claim of earning only $2 margin on your money! 

This is why bankers are so rich.

In theory, when people don’t withdraw cash, the bank has the capability to reduce their interest on secured loans down to ($5+$2)/10=$0.7!


Added after 2019 Jan 20:



Demonetizing in India robs the poor.

Preparing for cashless trading.

Cashless and negative interest go hand in hand.


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