Comment by PowerElectronix
5 days ago
I personally fail to see the downside of any manufacturer selling forever at a loss, except for the manufacturer itself.
5 days ago
I personally fail to see the downside of any manufacturer selling forever at a loss, except for the manufacturer itself.
You become dependent on the supplier.
The downside in general is that other countries lose production capacity in steel, heavy industry, semiconductors, machine tools etc - industries that took decades to build and can't be easily replaced.
Also they gradually lose the ability to meaningfully innovate in those sectors because there's no grounding against production reality anymore.
This has geopolitical consequences further down the line.
Blame China.
As though moving production to China wasn’t something the West did intentionally.
And now continues to push manufacturing out of Western countries by, for example in the UK and Germany, and Australia too, making electricity and gas so expensive it becomes cost prohibitive to manufacture much at all.
You forgot to mention embargoes against it. The US is free to sanction firms for their exports to China, but then shouldn't be surprised when China builds out domestic competitors.
> The downside in general is that other countries lose production capacity in steel, heavy industry, semiconductors, machine tools etc - industries that took decades to build and can't be easily replaced.
That's not really what happens though. You don't actually "lose" capacity, you just move to higher-valued special niches within the overall industry because (1) you can afford to, while low-cost competitors can't and (2) you can no longer expect to be the lowest-cost supplier for the bulk of the market. That's a win-win development and something to be encouraged.
> You don't actually "lose" capacity, you just move to higher-valued special niches within the overall industry
That's not what people mean by "lose" capacity.
Suppose DRAM companies expand capacity because prices are high, then demand levels off, the price crashes, and they all go out of business except for the one in China which gets a government bailout. That's fine, right? We're not interested in making DRAM, that's a fungible commodity, we want to make iPhones or something. (They make those too anymore, but never mind that.)
What happens now if China restricts what you can buy to give an advantage to their own companies who are trying to displace you in the higher-valued special niches? Or just raises the price for you and not them? What if there's a trade war? Or a conventional war?
When you still have a domestic industry, you go to them and have a source for the commodity. If only one country becomes the sole global supplier and that country isn't even particularly friendly, that's bad.
17 replies →
> steel, heavy industry, semiconductors, machine tools
the question is if single country can carry all these industries at loss for prolonged period of time.
Another approach is to rely on international supply chain and speed of innovation, we can't produce steel domestically profitably today, fine, we may buy it from diversified international supplier network, and rebuild it fast tomorrow if needed using new tech, and focus on many other high margin verticals, instead of putting many billions of resources into infra which could be obsolete tomorrow.
This is fine as long as the supply chain is, in fact, diversified.
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First, they're not selling at a loss; the huge price increases have allowed them to push aggrssively in the legacy markets. They're making "slightly smaller" profits than other manufacturers (of which there are now very few).
Second, they can drive out all competition and then have a captive audience for whatever prices they want, as the barriers to entry in these markets are very high. This is essentially what's happened with all higher-end manufacturing in the west over the past 30+ years.
Because it's never forever. It's until the corporation substitutes the market, at which point you are at their mercy.
You're always at someone's mercy in any industry with significant barriers to entry, you might as well pick a low-cost supplier.
That is such a defeatist position... How about regulation?
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If you actually believe this, then what is your explanation for a manufacturer to do this?
Do you think they are just stupid?
Microsoft gave away Internet Explorer at a loss, and what happened to internet standards?
the currency eventually collapses
I don't know if it's still a thing, but China was getting a lot of heat about a decade ago for purposefully devaluing their currency to make their exports more attractive.
They kind of had to do this, because their large amount of exports were pushing the value of it up compared to others.