How beggar-Thy-Neighbour Policies a threat to Global Trade
- February 5, 2025
- Posted by: OptimizeIAS Team
- Category: DPN Topics
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How beggar-Thy-Neighbour Policies a threat to Global Trade
Sub : Eco
Sec: External policy
Why in News?
- The term “Beggar-Thy-Neighbour” has gained renewed relevance amid growing trade tensions and currency devaluations, particularly between major economies like U.S. and China.
Context:
- Beggar-thy-neighbour policies refer to protectionist economic measures that benefit one country’s economy at the expense of others.
- Such policies can include high tariffs, strict import quotas, and currency devaluations.
- Critics argue that global trade wars, often fueled by these policies, can cripple international commerce, leading to economic downturns like the Great Depression.
Economic Mechanism
- These policies are adopted to protect domestic industries but often result in economic retaliation from other countries.
- The most common examples include:
- Trade Barriers: Imposing high tariffs and import quotas on foreign goods.
- Currency Wars: Central banks depreciate domestic currencies to boost exports and discourage imports.
Historical Origins
- The term was first introduced by Scottish economist Adam Smith in 1776 in his book The Wealth of Nations.
- Smith criticized mercantilist policies, arguing that free trade benefits all nations, while protectionism only leads to economic decline.
Supporters’ Arguments
- Protecting Domestic Industries & Jobs:
- Some industries require government protection for national security or to survive in their nascent stage.
- Boosting Exports via Currency Depreciation:
- A weaker domestic currency makes exports cheaper and more competitive globally.
- Higher exports & lower imports can lead to a trade surplus, benefiting the domestic economy.
Critics’ Concerns & Global Impact
- Risk of Trade Wars & Economic Retaliation
- Tit-for-tat tariffs and devaluations often lead to a cycle of retaliation, reducing global trade.
- The interwar period (1918-1939) saw widespread trade barriers and currency devaluations, worsening the Great Depression.
- Recent Examples:
- China & Japan have faced accusations of currency devaluation to maintain trade surpluses.
- U.S.-China Trade War (2018-2020) saw heavy tariffs imposed by both countries, impacting global markets.
Impact on Consumers
- Higher tariffs may protect domestic producers but increase prices for consumers.
Example: U.S. tariffs on Chinese goods helped American manufacturers but raised costs for U.S. consumers.
- Currency devaluations can reduce purchasing power, making domestic goods more expensive.
Alternative Approach: Unilateral Free Trade
- Some economists argue that retaliatory tariffs hurt the imposing country’s consumers.
Example: If the U.S. imposes tariffs on Chinese goods, China retaliating with tariffs on U.S. goods will further harm its own consumers.
- Free trade proponents believe that avoiding retaliatory tariffs can allow one country to benefit from another’s protectionist mistakes.