Price-Competition Between India, Japan, and the U.K. in the Indian Cotton Textile Market During the Nineteen-Thirties

Abstract

W l ;rHILE there can be no doubt that the IV V main determinant of the volume of world trade during the I930'S was the level of world incomes, there can be no gainsaying the fact that in a number of commodities, there were relentless, even ruthless, price wars, waged between competing countries. One such pricewar, which created considerable bitterness, was the competition between the textile products of the United Kingdom and Japan in world markets. This competition reached its acme in the Indian cotton textile market, where not only did the rapidly rising textile industry of Japan come to grips with the steadily-declining British textile industry, but both of these came in direct and vigorous competition with the newly protected and fast expanding Indian textile industry. Obviously the competition was not centered around price considerations alone; and a variety of factors ranging from nationalism to bilateralism, from marked differences in tariffs to sharp differences in quality of the competing products, were clearly in active operation. An attempt is, therefore, made in this paper to study the various strands of this triangular competition with particular reference to the efforts of the various competitors to enlarge, or alternatively to hold on to, their quotas in the Indian market. The sequel will also show that while the conditions of the slump and the operations of excessive and competitive depreciations were the outstanding factors in this drama, there was also a marked effort, very consciously operative in the case of Japan's exports, to pass on to the world in the shape of lower export prices the benefits of her increased productivity in the economy in general but in the textile industry in particular. In this significant sense, price changes were also indicative of the gains in productivity of the Japanese economy. In order to compare first the price and quantity behavior of Japanese and British exports to India, the following method is used: the ratio of the prices of Japanese textile exports to the prices of British textile exports to India (col. i in Table i) is multiplied by the ratio of the rupee/yen rate of exchange for the current year to the rupee/sterling rate of exchange for the same year (col. 2 in Table i); and this sum (col. 3) is then multiplied by the ratio of the tariff imposed in India on Japanese goods to the tariff imposed in India on British goods (col. 4). The final ratio (col. 5 of Table i), gives with I929 equal to Ioo the relationship between British and Japanese cotton textile exports to India after both have felt the impact of changing rates of exchange and of the differential tariffs imposed in India, the former being in Japan's favor due to currency depreciations and the latter in the United Kingdom's favor due to differential tariffs biased against Japan. It has, however, been thought inadvisable for a number of reasons to include transports costs in this picture, even though the indexes of freight rates are available. Those interested in the study and computation of the elasticity of substitution of demand among different types of the same product may profitably examine the correlation between cols. 5 and 6; for the present purpose, the comparison should be between cols. 3 and 5. The latter can be illustrated with reference to any year after I93I. Thus in I933-34, the price ratio of Japanese to British textile exports was 93.5. Thanks, however, to the severe yen depreciation, this price ratio of 93.5 was reduced to only 56.2 (col. 3) in Japan's favor in the Indian market. But the operation of the preferential Indian tariff (col. 4) challenged this price advantage and raised the ratio to 67.4 as shown in col. 5. Comparison of cols. 5 and 6 yields some interesting results. In I930-3I when the final ratio rises from I04.2 to I09.4, the export quantity ratio rises in Japan's favor to a * I must record my appreciation of the help given in the preparation of this paper by Dr. Jacques Parizeau, now of the University of Montreal.