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The Grey Market

The grey market refers to products that are imported from abroad and sold outside a manufacturer’s normal channels of distribution. By utilizing fluctuations in exchange rates, grey marketers are able to sell genuine, trademarked products for significant discounts. Termed “arbitrage”, this essentially involves the simultaneous buying and selling of commodities in different markets in order to take advantage of pricing differences for the same product. These alternate trade routes are completely legal in the U.S. In 2013, the U.S. Supreme Court protected the importation of copyright materials in Kirtsaeng v. John Wiley & Sons under the first-sale doctrine. Products such as computers, cameras, watches, and agriculture are heavily prevalent in the grey market.

While this market is financially beneficial to the consumer, it has the potential to cause significant drawbacks. Because the grey market circumvents established trade routes, they are not subject to tariffs. This has caused a growing problem for U.S. producers. Due to the current U.S. China trade war, there has been an emergence of grey markets in other foreign countries. Anna Laca, a journalist for AGWeb, highlighted this issue in her September 2018 article, “Tariff Loophole: How U.S. Soybeans Might Be Getting to China”. According to Laca, Chinese soybean buyers are evading U.S. tariffs by purchasing them through Argentinian grey markets. It’s been estimated that China has “booked 850,000 metric tons of beans since September 1” through these markets. Other journalists have also mentioned this phenomenon in the past months. From the U.S. lobster market (Amy Zhong) to diabetes testing strip suppliers (Daniel Allar), various U.S. producers have also been experiencing losses due to the grey market.

This notion can be linked to the phenomenon of power in social networks. The power of a node within a network structure is largely dependent on the position in which they are located. The less outside options a node has available, the less power it holds in a network. When observed in an economic setting, the power a node possesses is largely related to the revenue it produces. The case study of grey markets largely reflects this notion. The emergence of grey markets essentially reduces the power of U.S. producers in which it provides consumers with an additional outside option. Therefore, important questions must be considered regarding these markets. Should more regulations be placed on the grey market to help domestic producers? Do grey markets promote diversification of the economy? In light of the current U.S. China trade war, these markets are rapidly growing. Policymakers must consider the influence of outside options on current U.S. producers when regarding the grey market.


Fun Fact: The term “grey market” was created to scare consumers into thinking it was illegal. The name resembles the “black market” which refers to stolen and illegal products.


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