As China continues to capture global markets for goods and its trade surpluses grow, it is increasingly viewed elsewhere as a country whose economic growth comes at the expense of the rest of the world. China’s industrial policies and growth model at large, critics complain, are beggar-thy-neighbour.
The term ‘beggar-thy-neighbour’ has an interesting history. It refers to an old children’s card game in Britain, as depicted in Charles Dickens’s 1861 novel Great Expectations, where the objective is to win all the cards in the deck.
It made its first appearance in economics in Adam Smith’s portrayal of mercantilist thought in Wealth of Nations. Mercantilists mistakenly taught nations, wrote Smith, “that their interest consisted in beggaring all their neighbours.”
But it was Joan Robinson, the Cambridge economist and contemporary of John Maynard Keynes, who popularized the term in an essay written in the 1930s. Robinson wrote at a time of generalized unemployment caused by a collapse of aggregate demand—what we would subsequently call Keynesian unemployment.
Many governments deployed mercantilist policies, such as import tariffs or currency depreciations, that they hoped would improve the country’s trade balance. The goal was to increase domestic employment by diverting demand from foreign goods and services to domestic ones.
As Robinson pointed out, these policies were zero-sum from a global perspective. A country could increase its trade surplus or reduce its trade deficit only if others’ trade balances were changed by the same amount in aggregate.
Mercantilism could help employment in one country only at the expense of greater unemployment in others. Robinson called these policies ‘beggar-my-neighbour,’ which became ‘beggar-thy-neighbour.’
Superficially, that description would seem to apply to China’s policies, since its export surplus requires other countries to run trade deficits. The big difference, however, is that we are not in a world of deficient aggregate demand. Unemployment rates are 4.2% and 6.3% in the US and Germany, respectively, compared to 25% and 30% at the height of the Great Depression.
Boosting aggregate demand and employment is not a policy priority in any of the world’s major economies.
When economies run near full capacity, it is not clear that trade deficits should be a cause for concern. They represent a transfer of purchasing power from surplus countries (like China), which can lead to higher consumption or, more desirably, investment. By this logic, China’s surpluses might as well be called enrich-thy-neighbour.
What, then, would make China’s surpluses a problem? First, macroeconomic imbalances can create financial instability and increase the risk of a crisis. Second, insofar as they produce ‘excess capacity’ and ‘over-production’ in manufactured sectors, China’s surpluses may promote industrial decline in deficit countries. And third, they can aggravate distributional and social problems in deficit countries.
These concerns are often justified, but they do not imply that China’s economic gains come at others’ expense. For the most part, they call for appropriate responses from affected countries, rather than major adjustments by China.
Governments concerned with the macro and financial consequences of large deficits have a large menu of policy options. They can rein in fiscal deficits, tighten prudential regulations, tax capital inflows and depreciate their currencies.
When deficit countries complain that their policy choices are restricted, it is often because they are trying to eat their cake and have it too. The US government, for example, refuses to do anything that would reduce the attractiveness of US assets. So, it reaps benefits as the world’s financial centre, while griping about its trade deficits that are at least partly the result.
Deficit countries also have options when it comes to manufacturing, but they must be clear about their objectives. Complaints about excess capacity are often misplaced. The consumer benefits of cheap Chinese goods are real regardless of whether they are the result of genuine productivity or government subsidies, and in this case, it is mostly the former.
There is no evidence that China intends to exercise (or ever has exercised) monopoly power in manufacturing sectors of concern, so predatory pricing is not an issue either. Job losses in affected industries can be socially costly, but governments should recognize that, with or without Chinese rivalry, manufacturing is no longer a job-creating sector.
The adverse impact on import-competing firms is also real. But policymakers in advanced economies should be concerned about Chinese competition only to the extent that their own manufacturers generate technological and learning spillovers for other firms and sectors .
This may be true in some segments, but not across the board. Where the argument carries weight, it calls for selective domestic policies that target market failures and externalities in those segments directly. In other words, countries worried about China’s impact on their factories should deploy their own versions of China’s industrial policy.
In any discussion on beggar-thy-neighbour policies, we should not forget renewables, where China’s industrial policies have generated enormous enrich-the-world effects. China’s subsidies, public venture funds and other policies to promote investments in solar, wind, electric vehicles and batteries have produced a veritable revolution in renewable energy.
The dramatic reduction in the costs of alternative sources of power is the best news the world has had in the fight against climate change. In pursuing its own advantage, China has also delivered a major global public good.
China’s critics might have a stronger point when they argue that China’s overall macro posture is harmful to China’s own economy—that it’s beggaring itself. Its unbalanced strategy, with its heavy emphasis on exports and repression of consumption, has delivered high rates of economic growth, but may well be due for a redesign.
Still, outsiders should be wary of second-guessing policymaking in a country that, for the last 50 years, has delivered the most impressive economic performance in world history. ©2026/Project Syndicate
The author is a professor of international political economy at Harvard Kennedy School, and the author of ‘Shared Prosperity in a Fractured World: A New Economics for the Middle Class, the Global Poor, and Our Climate’.