Janet Bufton has an excellent recent post on Adam Smith on tariffs. I wish to add my own thoughts to her post.
Bufton rightfully points out that Smith would staunchly oppose these tariffs because they focus on the trade deficit, something he calls “absurd.” Smith was a free trader, through and through:
All systems of preference or of restraint, therefore, being thus completely taken away, the obvious and simple system of natural liberty establishes itself of its own accord. Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, order of man. The sovereign is completely discharged from…the duty of superintending the industry of private people, and of directing it towards he employments most suitable to the interest of the society” (Wealth of Nations pg 687, Book IV, Chapter ix, Paragraph 51).
Smith would oppose the “retaliatory” tariffs because they are not retaliatory in any reasonable sense of the word. He would also oppose these supposed negotiations taking place for the same reason (I say “supposed” because, as of this writing, the White House has refused to provide a list of countries currently negotiating). Trump is not negotiating for free trade, or even for “fair trade” (however defined). He is obsessed with trade deficits. Assuming Trump is good to his word, the negotiations would be about reducing the trade deficit, not about allowing the “simple system of natural liberty” to come about.
Don’t get me wrong, I am glad Trump blinked in this very dangerous game of Chicken. While a 90-day pause and the blanket tariffs are still quite bad, it’s not as bad as things looked on April 3. But I am not optimistic about any negotiations insofar as they generate any true moves toward free markets. I suspect that, if negotiations are taking place, they are an attempt by Trump to “direct the industry of private people.”
Adam Smith was a classical liberal. For him, government had three roles:
- Protecting the society from violence and invasion from other countries
- Administering justice
- Creating certain public works and institutions that may not be viably provided by individuals (i.e. collective-consumption goods)
In none of those three would Smith approve what is going on with tariffs right now. If he were alive right now, I think he’d be yelling at Trump: “WE ALREADY MADE THIS MISTAKE!”
