Beggar Thy Neighbour Policy was termed by economist Adam Smith in his very famous book ‘The Wealth of Nations (1776)’. It refers to international trade policies which are adopted by a nation and are beneficial to the nation but at the expense of its neighbouring nations or trade partners.
Originally, the policy was used to combat domestic depression and high unemployment rates, but with time, major economies like China & US have used in such a manner for their benefit, that it is harmful for others.
China has been accused of using Beggar Thy Neighbour Policy and the policy has following major consequences:-
- The weakening of neighbour economies.
- Trade war affects the global economy but it also had a negative impact on both economies.
- It may lead to user having limited choices and quality issues also, especially in developing and under-developed economies.
- It may create political tensions worldwide.
- A huge amount of goods being dumped in neighbouring economies.
What are the limitations of such a practice?
In the current situation of global economic slowdown and weak demand, a price advantage on goods and services need not necessarily prop up exports. In certain cases, such a policy may prove counter productive. If, for instance, even the competing country counters one policy move, of say, depreciation (to protect exports) then such a practice may not have desirable results, especially the country’s imports are not price elastic (the imports are essential and not dependent on prices) and instead could end up hurting the trade balance through higher import price and resulting in inflation in such economies.
Hence, countries must abandon using this policy and opt for global cooperation to make sure that global as well as individual economies can be revived and developed, after this setback of COVID-19 pandemic.