Beggar-Thy-Neighbor

What Is Beggar-Thy-Neighbor?

Beggar-thy-neighbor is a term used for a set of policies that a country enacts to address its economic woes that, in turn, actually worsen the economic problems of other countries. The term comes from the policy's impact, as it makes a "beggar" out of neighboring countries. 

Understanding Beggar-Thy-Neighbor

Beggar-thy-neighbor often refers to international trade policy that benefits the country that enacted it, while harming its neighbors or trade partners. Protectionism is often seen as a key example of policies that are intended to strengthen a domestic economy, but which may negatively impact trading partners.

Beggar-thy-neighbor policies came about, originally, as a policy solution to domestic depression and high unemployment rates. The basic idea is to increase the demand for a nation's exports, while reducing reliance on imports.

This means driving consumption of domestic goods up, as opposed to consumption of imports. This is usually achieved with some kind of trade barrier — tariffs or quotas — or competitive devaluation in order to lower the price of exports and drive employment and the price of imports up.

A currency war is a prime example of beggar-thy-neighbor in action since it amounts to a nation attempting to gain an economic advantage without consideration for the ill effects it may have on other countries. Also known as competitive devaluation, this is a specific pattern of tit-for-tat policies in which one nation matches an abrupt national currency devaluation with another devaluation.

In other words, one nation is matched by a currency devaluation of another in a negative feedback loop. Often the country devaluing first intends to boost its exports on the global market, and not necessarily cause harm.

Beggar-Thy-Neighbor: A Brief History

The term is widely credited to the philosopher and economist Adam Smith, who used the term in The Wealth of Nations, a critique of mercantilism and protectionist trade policies. Smith saw mercantilism and its zero-sum understanding of the market encouraging nations to beggar each other in order to increase economic gain as misguided; instead, he believed that free trade would lead to long-term economic growth that was not zero-sum, but would actually increase the wealth of — you guessed it — all nations.

Nevertheless, many country's have deployed mercantilist and protectionist economic policies through the years. A number of countries did so during the Great Depression, Japan did after WWII, and China did after the Cold War.

With the rise of globalization in the 1990s, beggar-thy-neighbor fell by the wayside — for the most part. Recently, though, protectionist policies have been making a comeback, at least in visibility, as evidenced by former President Donald Trump's 'America First' rhetoric.