How beggar-thy-neighbour policies can halt global trade

Origins of the Concept

• The term was coined by Scottish economist Adam Smith in his 1776 book, The Wealth of Nations.

• Smith criticized mercantilists who advocated protectionist policies to achieve a trade surplus with other countries.

• Smith believed free trade in the long run enriches all nations engaged in such trade.

Supporters of Beggar-thy-Neighbour Policies

• Supporters argue these policies boost a country’s domestic economy by aiding important industries and protecting jobs.

• Central banks argue that depreciating the national currency boosts exports and discourages imports.

• Exports are seen as boosting demand for domestic goods, while imports are seen as boosting demand for foreign firms.

Opposing Views

• Critics argue that beggar-thy-neighbour policies can make all countries poorer, especially when countries retaliate against each other.

• Such policies were implemented during the interim period between the two major World Wars, leading to a significant drop in global trade and investment.

• Critics also argue that countries should not retaliate when a foreign country imposes tariffs or devalues its currency to favor its own domestic exporters.

• They believe that countries adopting unilateral free trade can avoid the damage caused by retaliatory tariffs and even benefit from the protectionist policies of other countries.