Beggar-thy-neighbor is a type of strategy that is designed to enhance the financial stability and prosperity of one nation at the expense of other nations that currently do business with that country. Essentially, this trading strategy will make use of the devaluation of currency as well as changes in import and export policies and other economic measures to move the internal economy of the nation in a desired direction. Depending on the severity of the changes, a beggar-thy-neighbor situation may temporarily alleviate some of the economic issues faced by the nation, but can in the long run create new difficulties as the measures negatively impact the nation’s trading partners.
There are several different strategies that may go into a beggar-thy-neighbor approach. One has to do with engaging in currency devaluation that has a direct impact on the cost of imports and exports. This particular approach will have the effect of making it more expensive to import goods into the nation while at the same time making exports less expensive. The end result involves higher costs for sellers who routinely import goods while also lowering the profit margin for buyers who purchase products that are exported.
A similar strategy that is considered to be a beggar-thy-neighbor activity is appreciating the currency. This will have the opposite effect of a devaluation, and can be helpful when it comes to dealing with inflation within the nation. The appreciation will also have the effect of increasing the cost of buyers in other nations choosing to do business with domestic companies.
Another common example of a beggar-thy-neighbor approach is to change import policies and procedures so they are more prohibitive. This could mean limiting the import of certain goods or services, a move that is usually designed to motivate domestic businesses to purchase those products from other domestic businesses. As a result, trade with other nations is reduced, something that could harm trade relations over the long run.
While various types of beggar-thy-neighbor strategies can often address a core group of economic issues facing a country, and possibly even alleviate those issues for a time, the impact of implementing those approaches on other nations must be assessed. In some cases, the negative impact on other participants in a multi-nation trade agreement could trigger the demise of the arrangement altogether. When this happens, other economic issues will likely arise, with some of those issues being more severe than the issues that were corrected with the beggar-thy-neighbor activities. For this reason, care should be taken when implementing internal policies that also have an effect on international trade agreements, making sure the efforts do not cause damage that is ultimately not in the best interests of the nation.