Answer

The  term coined by Adam Smith in 1776, Beggar-thy-neighbour policies refer to protectionist economic policies adopted by governments that are aimed at benefiting a country’s economy at the expense of other countries. A trade war in which a government imposes heavy tariffs and strict quotas on the import of foreign goods into the country is the most common example of beggar-thy-neighbour policies.

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Beggar-thy-neighbour policies promise short-term domestic benefits

• Boost Domestic Exports: These policies depreciate a nation’s currency, making domestic goods cheaper in global markets, increasing exports and benefiting local manufacturers.
  For example: The Chinese government has been accused of devaluing the yuan to enhance the global competitiveness of its export-dependent industries.
• Protect Nascent Industries: High tariffs and quotas shield fledgling domestic industries from foreign competition, allowing them to grow and stabilize.
  For example: The U.S. imposed tariffs on steel imports in 2018 to protect its domestic steel industry, benefiting local producers and their employees.
• Preserve Domestic Jobs: Restricting imports encourages domestic production, safeguarding jobs in local industries threatened by foreign competition.
  For example: During Donald Trump’s presidency, tariffs on Chinese goods aimed to support American manufacturing jobs, particularly in the automotive and electronics sectors.
• Achieve Trade Surplus: Policies reducing imports and increasing exports can create a trade surplus, which strengthens the economy by increasing demand for domestically produced goods.
  For example: Japan has long maintained a trade surplus by ensuring favorable currency valuations and protecting key industries like automobiles and electronics.
• Enhance National Security: Restricting foreign imports in strategic sectors ensures the country’s independence and reduces reliance on foreign nations during geopolitical tensions.
  For example: India restricted the import of Chinese telecom equipment in 2020, citing national security concerns and promoting domestic manufacturing under the “Make in India” initiative.

Beggar-thy-neighbour policies lead to global economic instability (Historical Evidence)

• Trigger Retaliatory Measures: Tit-for-tat tariffs escalate trade wars, reducing global trade and harming economies.
  For example: Retaliatory tariffs during the 1930s, like the U.S. Smoot-Hawley Tariff Act, led to a global trade collapse, exacerbating the Great Depression.
• Competitive Currency Devaluations: Currency wars destabilize international markets and harm global financial systems by reducing investment and trade flows.
  For example: In the 1930s, competitive devaluations by European countries, including the UK, disrupted global trade during the Great Depression.
• Global Trade Decline: Protectionist policies reduce the volume of international trade, negatively impacting interconnected economies.
  For example: The trade wars between the U.S. and China in 2018-2019 led to a decline in global trade growth, affecting multiple economies.
• Economic Inefficiencies: Artificial trade barriers create inefficiencies by allocating resources to less competitive domestic industries rather than more efficient global producers.
  For example: The European Union’s Common Agricultural Policy has historically raised prices for consumers and distorted global agricultural markets.
• Consumer Hardship: Domestic consumers face higher prices due to restricted imports and weakened purchasing power, slowing overall economic growth.
  For example: U.S. tariffs on Chinese imports led to higher consumer prices for electronics, clothing, and household goods, burdening American families.

Beggar-thy-neighbour policies lead to global economic instability in light of current trade tensions

• Escalation of trade wars: Beggar-thy-neighbour policies, such as retaliatory tariffs, escalate trade wars, reducing global trade volumes and hampering economic growth.
  For example: The U.S.-China trade war (2018-2019) saw both countries impose tariffs worth billions of dollars, disrupting supply chains and slowing global GDP growth.
• Global supply chain disruptions: Protectionist measures and tariffs create uncertainties, causing firms to restructure supply chains, increasing costs and leading to inefficiencies.
• Currency volatility: Competitive devaluations lead to instability in exchange rates, adversely affecting businesses reliant on stable currency values for cross-border transactions.
  For example: Japan’s 2013 yen devaluation policy to boost exports caused currency fluctuations, impacting emerging markets dependent on yen-denominated trade.
• Decline in investor confidence: Protectionism reduces global trade predictability, deterring investments, especially in sectors relying on international cooperation and long-term stability.
  For example: Uncertainty caused by Brexit trade negotiations (2016-2020) led to reduced foreign direct investment in the UK.
• Risk of economic isolation: Prolonged use of protectionist policies can isolate economies, reducing market access and opportunities for growth.
  For example: Russia’s 2014 import bans in response to Western sanctions cut its trade ties, impacting GDP growth and leading to domestic inflation.

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Implications for developing economies and global trade architecture

• Adverse impact on export-driven growth: Developing economies reliant on exports face reduced market access due to protectionist measures imposed by developed nations.
  For example: U.S. tariffs on Indian steel and aluminum in 2018 affected Indian exporters, leading to a trade deficit and impacting the steel industry.
• Vulnerability to currency devaluations: Depreciation of major currencies affects developing nations’ imports, raising costs for essential goods like food and energy.
  For example: The U.S. dollar’s rise in 2022 led to a surge in import costs for countries like Sri Lanka, worsening its economic crisis.
• Erosion of multilateral trade systems: Protectionism undermines global trade agreements, weakening institutions like the WTO that promote fair trade practices.
  For example: The U.S. blocking WTO appellate body appointments under Trump reduced its capacity to resolve trade disputes effectively.
• Reduction in technology transfer: Barriers to trade discourage developed economies from investing in developing countries, limiting technology and skill transfers critical for growth.
  For example: U.S. restrictions on technology exports to China during the trade war slowed Chinese advancements in AI and semiconductors.
• Shift in global trade dynamics: Protectionist policies cause regional trade blocs to emerge, fragmenting global trade architecture and leaving smaller nations excluded.
  For example: The Regional Comprehensive Economic Partnership (RCEP) excludes the U.S., shifting trade dynamics in favor of Asia-Pacific economies.

Global economic stability hinges on cooperation, not competition. Developing economies must embrace multilateralism and fair trade to ensure long-term prosperity. Moving away from beggar-thy-neighbour policies and fostering collaborative trade frameworks can create a future where everyone thrives. Stronger ties, stronger economies—together, we build a more resilient world.

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