Dumping, theft, and currency manipulation

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Dumping, theft, and currency manipulation

Dumping is an old tradition, and a profitable one. Imagine that you make high-end widgets, and that you estimate there is a domestic market for 50 thousand of them at $200 each. It would cost you $100 apiece to make 50,000 of them, which would give you a profit of $5 million {(50,000 × 200 = 10,000,000) – (50,000 × 100 = 5,000,000) = 5,000,000)}.

On the other hand, it would cost you $75 apiece to make 100,000 of them, an outlay of $7,500,000. You then sell 50,000 for $200 each, for a profit of $2,500,000. You then dump the remaining 50,000 abroad for $100 each, bringing your profit to a total of $7,500,000. This, of course, causes some problems for manufacturers of widgets in the countries in which you dump them, who are hard pressed to compete profitably at that price.

You can also increase your competitive advantage by reducing research and development costs through stealing information. Although U.S.corporations lose something on the order of $300 billion dollars a year, few take the problem seriously, so theft is cost effective and simple. So, imagine that you want to sell a product which would require you to spend $100 million in R&D. Instead, you suborn someone who works for a competitor that has made this investment, and buy the information from them for $50,000. This frees up nearly $100 million of your hard-earned dollars, giving you a great advantage in the marketplace, since you don’t have to include this R&D cost in your sales cost.

This competitive advantage can be increased through government-level currency manipulation, of which China has been accused (in violation of any number of treaty agreements). If a country can undervalue its currency, something that costs $100 to make will be sellable at some lower price. How does a country do this? Instead of allowing their currency to float to market value, they artificially set the price. Thus, if a currency should be one whatever per dollar, they set the value to be something less, say .8 per dollar. This makes buying their products very cost effective.

Currency manipulation works the other way, too. If a government can artificially keep up the value of a competitor’s currency, then their currency will be artificially lower. We can see this in action in the purchase of U.S.debt by China and Japan, among others, which has kept American interest rates low, and the value of the dollar high.

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