Legal Definitions - beggar-thy-neighbor policy

A beggar-thy-neighbor policy refers to an economic strategy adopted by a government to improve its own domestic economic conditions, such as reducing unemployment or increasing national output, by implementing measures that negatively impact the economies of its trading partners. These policies often involve making it more difficult or expensive for foreign goods and services to compete in the domestic market, or by gaining an unfair advantage in international trade.

Common methods used in a beggar-thy-neighbor policy include:

• Raising tariffs: Imposing taxes on imported goods, making them more expensive than domestically produced alternatives.
• Instituting non-tariff barriers: Implementing quotas (limits on the quantity of imports), complex regulations, or subsidies for domestic industries that disadvantage foreign competitors.
• Competitive currency devaluation: Deliberately lowering the value of a nation's currency to make its exports cheaper and more attractive to foreign buyers, while making imports more expensive for domestic consumers.

Here are some examples illustrating a beggar-thy-neighbor policy:

• Example 1: Tariffs on Manufactured Goods
  Imagine Country A is experiencing a decline in its domestic automobile manufacturing sector, leading to job losses. To protect its local industry, Country A imposes a 25% tariff on all imported cars. This makes foreign-made vehicles significantly more expensive for consumers in Country A, encouraging them to buy domestically produced cars instead. While this might boost sales and employment in Country A's auto industry, it simultaneously reduces demand for cars from countries like Country B and Country C, which export automobiles. These exporting countries then face reduced sales, potential factory closures, and job losses in their own automotive sectors.

  How it illustrates the term: Country A improves its domestic employment and output in the auto industry by making foreign goods less competitive through tariffs. This directly harms the economies of Country B and Country C by diminishing their export markets, thus "beggaring" its neighbors.

• Example 2: Competitive Currency Devaluation
  Suppose Country X's central bank decides to intentionally weaken its national currency against the currencies of its major trading partners. This action makes goods produced in Country X much cheaper for foreign buyers, leading to a surge in its exports. At the same time, it makes imported goods more expensive for consumers and businesses within Country X, discouraging imports. While this strategy boosts Country X's export-oriented industries and overall economic growth, it puts other countries at a disadvantage. Their exports become comparatively more expensive, leading to a decline in their own export revenues and potentially harming their domestic industries.

  How it illustrates the term: Country X gains a competitive edge in international trade by devaluing its currency, which stimulates its own economy. This advantage comes at the expense of other nations, whose exports become less competitive, thereby negatively impacting their economic well-being.

• Example 3: Agricultural Subsidies and Import Restrictions
  Consider Country M, a major agricultural producer, which provides substantial government subsidies to its domestic dairy farmers. These subsidies allow Country M's farmers to sell milk and dairy products at prices significantly below the global market rate. Concurrently, Country M implements stringent and complex health and safety regulations specifically for imported dairy products, making it difficult and costly for foreign producers to meet these standards. This combination makes it nearly impossible for dairy farmers in neighboring Country N and Country P to compete in Country M's market or even in global markets where Country M's subsidized products are sold.

  How it illustrates the term: Country M strengthens its domestic dairy industry through subsidies and non-tariff barriers, ensuring its farmers thrive. This directly disadvantages farmers in Country N and Country P, who cannot compete with the artificially low prices or overcome the regulatory hurdles, thus harming their agricultural economies and export potential.