Recent reports reflect growing anxiety about China’s pricing strategies across multiple industries. For example, according to the New York Times, China “produces a vast array of artificially cheap goods — heavily subsidized electric vehicles, consumer electronics, toys, commercial grade steel and more — but much of that trade was destined for the endlessly voracious American marketplace.”

“With many of those goods now facing an extraordinary wall of tariffs thanks to President Trump,” the Times continues, “fear is rising that more products will be dumped in Europe, weakening local industries in France, Germany, Italy, and the rest of the European Union.”

Competition drives innovation, improves quality, and most importantly, lowers prices for consumers. Yet when foreign companies — particularly Chinese firms — successfully compete on price, accusations of “predatory pricing” or “dumping” often follow. These charges deserve scrutiny through a lens of economic rationality, rather than through the fog of hazy protectionist thinking.

Predatory pricing occurs when a firm deliberately sets prices below production costs with the intent to drive competitors out of business. Once this goal has been achieved, the predator can theoretically raise prices to monopolistic levels and recoup earlier losses. The strategy sounds plausible in theory, but it is much harder to pull off in practice.

Such concerns aren’t new. For decades, American industries have pointed to low-priced foreign goods as evidence of unfair trade practices. In the 1980s, Japanese manufacturers of electronics and automobiles faced similar accusations.

Yet for all the alarm about predatory pricing, examples of its success remain surprisingly scarce. The most cited case — the Standard Oil Company during the early 20th century — has long been known by economists to be false. The truth is that Standard Oils’s low prices reflected its low costs.

Why does predatory pricing so rarely succeed? Basic economic principles provide several explanations.

First, predatory pricing imposes significant costs on the predator itself. Selling below cost generates immediate losses that can quickly accumulate to unsustainable levels, especially in capital-intensive industries. These losses are certain and immediate, while any potential monopoly profits are speculative and distant.

Second, competitors can often weather temporary price wars by accessing capital markets. If investors recognize that a company is competing against a predatory pricer, rather than suffering from fundamental business flaws, they have incentives to provide financing to enable survival through the predatory period — especially because the firm that loses most during the predatory period is the predator.

Third, even if a predator succeeds in driving competitors out of the market, the resulting monopoly position proves difficult to maintain. Once prices rise to profitable levels, new entrants are attracted into the market — entrants that oblige the predator to lower its prices.

Fourth, global competition makes market dominance increasingly difficult to achieve. If Chinese manufacturers drive American companies out of business, then European, Korean, and Indian competitors remain. True monopolization today would require successful predation against all global competitors simultaneously — an economically ruinous proposition.

Fifth, technological innovation constantly creates substitute products and alternative solutions, limiting the potential duration of any monopoly. By the time a predator succeeds, the market might have already evolved.

These economic realities explain why most alleged cases of predatory pricing represent something else entirely, such as legitimate efficiency advantages, normal price competition, or temporary subsidy effects that ultimately benefit consumers without creating lasting market distortions.

When Chinese solar panels were sold at prices below those of American manufacturers, consumers and climate advocates benefited from accelerated adoption of renewable energy. Rather than predation, price differences often reflect real comparative advantages like lower labor costs, economies of scale, specialized manufacturing expertise, and sometimes — it’s true — government industrial policies.

Not every low price represents predation, and not every government subsidy creates lasting market distortion. Sometimes foreign producers simply make products more efficiently, or accept lower profit margins to build market share — precisely the competitive behaviors that drive economic progress.

None of this means that all concerns about China’s industrial policies are misplaced. State capitalism certainly creates market distortions worth addressing through targeted trade policies like countervailing duties. But crying “predatory pricing” at every competitive foreign price point misdiagnoses the situation. Furthermore, it invites counterproductive protectionist responses that ultimately harm American consumers and the U.S. economy at large.

Instead of erecting trade barriers that raise prices for American consumers, policymakers should reform regulatory and tax policies to better ensure that American firms can compete. These approaches strengthen American competitiveness without sacrificing the benefits of global trade.