Beggar-Thy-Neighbor Policy

Beggar-Thy-Neighbor Policy Meaning

A beggar-thy-neighbor policy is a policy implemented by a nation to resolve its economic issues at other countries’ expense. The main purpose of using this kind of strategy is to safeguard the domestic economy through the increase of exports and reduction of imports.

Such policies involve applying restrictions and tariffs on imports along with currency devaluations to enhance the competitiveness of goods exported. Originally, such policies came into existence to curb high employment rates and domestic depression as countries aimed to prevent domestic industries from collapsing. Such policies can lead to trade-related tensions and negatively impact economic welfare from a global standpoint.

• Beggar-thy-neighbor policy refers to a strategy that countries adopt to solve their economic problems through means that usually worsen the conditions of their neighboring nations. 
• There are various advantages of beggar-thy-neighbor policies. For example, they can offer nations a competitive edge. Moreover, they can increase their exports while reducing imports. This leads to economic growth.
• Such policies may not work in the long run as the trading partners who are impacted by the strategy may retaliate by adopting similar strategies.

Beggar-Thy-Neighbor Policy Explained

Beggar-thy-neighbor policy refers to an economic policy that involves welfare losses incurred in the country impacted by the strategy offsetting the welfare gains of the country executing it. This kind of strategy provides the nation implementing it with a competitive edge over its trading partners or neighboring countries. Moreover, it protects the domestic industries that compete with goods imported from other nations.

As noted above, this policy can involve imposing tariffs on imports. This results in a drop in the export to import prices ratio, which, in turn, makes the exports and imports cheaper and costlier, respectively, at the same time. That said, one must note that if policies formulated to improve economic growth accompany import restrictions, tariffs, or currency devaluations, they might differ from beggar-thy-neighbor. This is because the restrictions or tariffs on imports will bring down exports, but policies that aim to enhance economic growth lead to increased imports typically.

Currency devaluations are an example of this kind of policy only if a nation carries them out to boost its exports only by making the goods cheaper for individuals and organizations on foreign land to buy. When exports increase, the nation’s global market share also rises.

Individuals must keep in mind that beggar-thy-neighbor policies in economics may not always work. This is because the country implementing them may lose a major portion of their gains earned at the trading partners’ expense when those nations retaliate by executing similar policies.

History

Adam Smith, a Scottish economist and philosopher, made reference to this particular term in his work The Wealth of Nations. He witnessed mercantilism and the zero-sum comprehension of a market that encouraged countries to beggar one another in an attempt to make economic gains as misguided. However, Smith had a belief that economic growth that was not one-sided over the long term would result from free trade. In other words, he thought that international trade without the interference of governments would actually lead to the growth of all countries.

Various nations adopted protectionist and mercantilist economic policies, especially at the time of the Great Depression. China and Japan utilized such strategies after the Cold War and World War II, respectively. That said, as globalization gained traction in the 90s, this type of policy continued to lose popularity

Examples

Let us look at a few beggar-thy-neighbor examples to understand the concept better.

Example #1

Suppose Country X and Country Y are two neighboring countries. They compete globally, manufacturing similar products. Country X adopted a beggar-thy-neighbor policy by purposely devaluing its currency. As a result of this strategy, Country X’s exports increased, and it was able to become more competitive in the market and increase employment growth. On the other hand, Country Y found it difficult to export its goods, and it experienced an increase in unemployment. Moreover, its economic growth was impacted as well.

As diplomatic tensions increased between the two countries, Country Y also implemented a similar strategy which wiped out the gains made by Country X. This example shows how such a policy can benefit a nation for the short term only.

Example #2

Besides slapping restrictions on pork and fertilizer, China has also imposed restrictions on steel. Such beggar-thy neighbor policies have resulted in higher prices all around the world while they have largely benefitted the people of China.

Analysts believe that the problem is China continues to operate like a small nation. The nation’s policies usually have the desired impact at home, for example, minimizing input costs for a group of Chinese farmers or raising returns for another. However, it passes the cost of addressing its domestic issues elsewhere. Experts believe that the nation must do more to assist in overcoming the possible humanitarian challenges that could materialize in various poor food-and-fertilizer-importing nations.

Advantages

The advantages of beggar-thy-neighbor policy are as follows:

• Countries can gain a competitive edge by using such a policy.
• Such policies can increase a country's exports, thus boosting its economic growth in the short term.
• Deliberate currency valuation can lead to exports becoming more competitive internationally. As a result, a nation can increase its global market share.
• Another benefit of the beggar-thy-neighbor policy in economics is that it can help nations boost employment growth.

Frequently Asked Questions (FAQs)

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