Opinion | Which US and Chinese policies fail the beggar-thy-neighbour test?

With major trading countries increasingly resorting to unilateral action to advance their own social, economic, environmental and security goals, the world economy desperately needs a clear normative framework to determine the rules of the road. A useful starting point is for everyone to agree, in principle, not to deploy beggar-thy-neighbour policies.

Actually, no, they are not. The perception that they are is rooted in a conceptual confusion between policies with adverse cross-border spillovers and policies that truly are beggar-thy-neighbour. It would indeed be hopeless and counterproductive to try to discipline all policies of the former type. Fortunately, beggar-thy-neighbour actions constitute only a small subset of such policies.

Hyper-globalisation floundered largely because of its ambition to overregulate policies with international spillovers. By focusing on genuinely beggar-thy-neighbour policies, we can target the real source of the problem and make more headway in international negotiations.

To understand the significance of this distinction, consider the classic case in which one country’s policy produces harms abroad, specifically by weakening another country’s terms of trade (prices of exports relative to imports). Initially formalised by Jagdish Bhagwati, this “immiserising-trade” scenario was later used by Paul Samuelson to argue that China’s economic growth could hurt the United States.

Consider two policies in particular. First, when the Chinese government subsidises research and development that enhances the country’s competitiveness in hi-tech products and lowers their prices on global markets, the US and other advanced economies are hurt because these are the areas of their comparative advantage.