PETER LEON: Beggar thy neighbour economics are self-defeating
It is now more widely accepted that import substitution policies seldom achieve the intended benefits
Writing in the wake of the Great Depression in 1937, on the eve of World War 2, distinguished Cambridge economist Joan Robinson observed that on the face of it an increase in exports relative to imports leads to more employment. The snag was that such an increase in exports in one country inevitably led to a decline in another.
Seven years after the US had enacted the Smoot-Hawley Tariff Act in 1930, increasing US import duties to a swingeing 60% and leading to a trade war that worsened the Depression, Robinson remarked that “as soon as one country succeeds in increasing its trade balance at the expense of the rest, others retaliate ... Political, strategic and sentimental considerations add fuel to the fire and the flames of economic nationalism blaze higher and higher.” Robinson dubbed this “beggar thy neighbour’’ economics...
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