Unfairly-priced imports in the U.S. market affect the prices U.S. producers receive in several ways, including an impact on supposedly “fixed” long-term contract prices. For some consumer goods, lower prices can increase demand for the goods, so that the negative impact of lower prices can be offset to some extent by higher revenues generated by higher sales volumes. But for many goods, lower prices have essentially no impact on the ultimate demand for a good, and demand is said to be “price inelastic.” This is especially true of intermediate goods whose cost represents a small portion of the total cost of a downstream product. For example, if the price of stainless steel sinks drops, people generally do not install or remodel more kitchens due to the lower price for sinks. Similarly, demand for pipe for oil and gas fields is driven by prices for oil and gas, not the price for the pipe itself.
[by Brian E. McGill | October 15, 2015 | Trade & Manufacturing Alert]
Many products subject to trade actions are relatively price inelastic. Thus, when the presence of unfair imports increases and provides much greater supply to the U.S. market, the excess supply created by unfair imports is not absorbed by increased demand. Rather, the supply/demand balance is distorted and prices fall as excess supply chases static demand. This impact is not theoretical and can affect even long-term contracts. That impact is evident when contract pricing is tied to a market price index that is falling due to excess supply.
Unfairly-priced imports can also directly affect the prices of specific transactions where the purchaser uses those prices to demand lower prices on goods purchased from U.S. producers by invoking a “meet or release” contract provision. Even in the absence of such a provision, if a purchaser has multiple suppliers, it can demand immediate price reductions to preserve the portion of purchases given to a supplier. Purchasers also can use their “long memories” to demand lower prices for future contracts even where they do honor quantity and price commitments in existing contracts.
In sum, the presence of unfairly-priced imports pervasively affects U.S. market pricing. This is true even where the purchaser does not buy the unfair imports, but merely uses the availability of those imports to demand concessions from U.S. producers.