China is in the news for (among other things) devaluaing their currency, the Renminbi (RMB, or Yuan). This has lead to a return of mercantalist fears about China, including that they are devaluing their currency and subsidizing exports in order to harm America and undercut our industry by selling their goods well below market price. This is called predatory pricing.
The idea behind predatory pricing is this: An economic actor enters a market and sells at such a low price that they take losses. With their lower prices, they drive out all competition and effectively create a monopoly. Then, using their monopoly power, they raise prices above the market level in order to gain extra-normal profits.
The problem with this argument is that it assumes a dynamic market up to the entry of the predatory pricer, and then a static market thereafter. Absent artificial barriers to entry in this market, when the predatory pricer raises their prices to extra-normal levels, it would create opportunities for new firms to enter the market at a lower price point, and thus erode the predatory pricer’s extra-normal profits. In order to regain their advantage, they would need to cut prices down again. In other words, in order to maintain their advantage, a predatory pricer would need to constantly take losses, which negates the whole point of entry.
To be fair, this strategy can work in the short term. It is currently being employed by both the Saudi Arabians and US oil miners to maintain/grab market share in the oil market (much to the benefit of oil consumers everywhere). But one can only absorb losses for so long. Eventually, he’d have to adjust and create efficiencies to operate profitably at the new level.
As with most fears regarding China, the predatory pricing one is largely unfounded. Ultimately, the one being hurt the most is not the US but rather China and its citizens.