The idea of beggar-thy-neighbour policies has resurfaced with the rise of protectionism and trade conflicts, especially under populist governments like the Trump administration in the U.S.

Concept of Beggar-Thy-Neighbour Policies

• About: Beggar-thy-neighbour policies refer to protectionist economic measures adopted by one country to benefit its economy at the expense of others.
• Examples:
  • Trade wars:  Imposing high taxes on imports to make foreign goods more expensive and encourage local consumption  
  • Strict Quotas: Limiting the quantity of foreign goods entering the market to protect domestic industries.
    • Example: US-China trade war (2018-2020) where both countries imposed tariffs on each other’s products to protect domestic industries.
  • Currency Wars: Central banks devalue the domestic currency to make exports cheaper and discourage imports, hoping to boost domestic exports.
    • Example: Post-2008 global financial crisis, where countries like Japan and the Eurozone resorted to quantitative easing to weaken their currencies and gain export advantages.

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Origins

• Adam Smith’s View: In The Wealth of Nations (1776), Smith criticized mercantilist policies that aimed to increase wealth through protectionism, arguing instead for free trade. 
  • He believed that all nations could benefit from free trade in the long run, rather than enriching one at the expense of others.
• Mercantilists: Advocated policies like tariffs and trade barriers to achieve trade surpluses, which, according to them, would lead to national wealth at the cost of other nations.

Arguments in Favour of such policies

• Boosting Domestic Economy: Proponents argue that protecting certain industries, especially nascent ones or those tied to national security, helps boost domestic employment and economic growth. 
  • For ex: India gives subsidies to  farmers reduce the production cost of agricultural outputs 
  • India increased tariff for Chinese mobile phones and launched production linked incentive scheme to boost domestic manufacturing of mobile phones which saw reduction in imports 
• Currency Devaluation: Central banks may support currency depreciation to make domestic exports more competitive globally, thereby increasing demand for home-produced goods. Similarly, a weaker currency makes imports more expensive, discouraging foreign purchases.
• Trade Surplus Argument: A trade surplus is seen as beneficial as it suggests a stronger national economy due to higher exports and reduced imports.

Arguments Against such policies

• Global Retaliation: A key critique is that these policies often lead to retaliatory actions. When one country imposes tariffs or devalues its currency, others may respond similarly.
  • This can spiral into a tit-for-tat scenario where countries impose competing tariffs and currency devaluations, significantly reducing global trade.
• Historical Evidence: During the interwar period (between WWI and WWII), such protectionist policies contributed to a sharp decline in global trade, exacerbating the Great Depression. 
  • The policies of competitive devaluation and retaliatory tariffs created economic isolation, further deepening the global economic crisis.
• Impact on Global Trade: Economic historians often point to the failure of global cooperation during this period as a critical factor behind the depression. 
  • Modern-day examples include accusations against countries like China and Japan for engaging in currency devaluation to gain an export advantage over countries like the United States.

Impact on Domestic Consumers

• Higher Prices for Consumers: While beggar-thy-neighbour policies may benefit domestic producers and certain political constituencies, they often harm consumers. 
  • For instance, tariffs imposed on foreign imports raise the prices of goods, reducing purchasing power and leading to inflation in the domestic market.
• Currency Depreciation Consequences: When a country devalues its currency to boost exports, domestic consumers face a reduction in the purchasing power of their money.
  • Imported goods become more expensive, which hurts consumers who rely on foreign products.
• Escalating Trade Conflicts: Retaliation, such as imposing tariffs in response to foreign tariffs, can escalate trade conflicts, creating a vicious cycle that harms all involved parties.
• Case of China and the U.S.: The trade war between the U.S. and China is a contemporary example. While U.S. tariffs on Chinese goods are designed to protect American producers, they can raise prices for American consumers, while retaliatory tariffs on U.S. exports hurt Chinese consumers as well.
• The Double Whammy Effect: Imposing retaliatory tariffs can hurt the retaliating country more than the original instigator. 
  • For example, if China retaliates against U.S. tariffs, it increases costs for Chinese consumers, while U.S. producers may continue to face reduced competition from Chinese goods.

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Conclusion

Rather than relying on protectionist policies, countries should focus on investing in innovation, skill development, and infrastructure to boost global competitiveness, fostering sustainable economic growth while avoiding harm to trading partners.

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