Adam Smith on Tariffs: an Interview

adam smith on the wealth of nations and tariffs

Adam Smith, author of An Inquiry into the Nature and Causes of the Wealth of Nations, considered the arguments made by today’s proponents of unilateral free trade and responded to them in print – more than 240 years ago.

And with Donald Trump poised to impose tariffs on another $200 billion in imports from China, it seems like a good time to channel the famous Scottish Commissioner for Managing and Causing to be Levied and Collected His Majesty’s Customs, and Subsidies and other Duties in that part of Great Britain called Scotland, and also the Duties of Excise upon all Salt and Rock Salt Imported or to be Imported into that part of Great Britain called Scotland. His answers will surprise you.

The Smith “responses” below are verbatim quotations from Book IV, Chapter 2, and Book V, Chapter 2, Article 4 of The Wealth of Nations.

an interview with Adam Smith

 Warren Platts: Commissioner Smith, President Trump at the G7 summit said there should be perfectly free trade among countries, with no tariffs, no barriers, no subsidies, and that his tariffs are meant as leverage to bring other nations back to the negotiating table. Do you agree with Trump’s strategy?

Adam Smith: There may be good policy in retaliations of this kind, when there is a probability that they will procure the repeal of the high duties or prohibitions complained of. The recovery of a great foreign market will generally more than compensate the transitory inconveniency of paying dearer during a short time for some sorts of goods. To judge whether such retaliations are likely to produce such an effect, does not, perhaps, belong so much to the science of a legislator, whose deliberations ought to be governed by general principles, which are always the same, as to the skill of that insidious and crafty animal vulgarly called a statesman or politician, whose councils are directed by the momentary fluctuations of affairs.adam smith's on the wealth of nations

Platts: [Laughing] Well I must admit that is a rather apt description of President Trump! I am sure you have read the China Shock paper authored by Autor, Dorn, and Hansen that documented the incredible economic and human toll that has occurred in many American regions as a result of the import surge from China after they were admitted to the WTO. Is unilateral free trade always the best policy under such circumstances?

Smith: Humanity may in this case require that the freedom of trade should be restored only by slow gradations, and with a good deal of reserve and circumspection. Were those high duties and prohibitions taken away all at once, cheaper foreign goods of the same kind might be poured so fast into the home market, as to deprive all at once many thousands of our people of their ordinary employment and means of subsistence. The disorder which this would occasion might no doubt be very considerable.

Platts: President Trump has reduced the corporate income tax, but it is still 21%. That is ultimately a tax on domestic production, but imports are let into the United States virtually tax free, arguably putting domestic producers at a disadvantage. Shouldn’t there be a level playing field?

Smith: It will generally be advantageous to lay some burden upon foreign industry for the encouragement of domestic industry, when some tax is imposed at home upon the produce of the latter. In this case, it seems reasonable that an equal tax should be imposed upon the like produce of the former. This would not give the monopoly of the borne market to domestic industry, nor turn towards a particular employment a greater share of the stock and labour of the country, than what would naturally go to it. It would only hinder any part of what would naturally go to it from being turned away by the tax into a less natural direction, and would leave the competition between foreign and domestic industry, after the tax, as nearly as possible upon the same footing as before it.

Platts: There is some talk in Congress about strengthening the Jones Act along the lines of the British Navigation Act, by, for example, requiring that all LNG exports be carried aboard American owned, crewed, built, and flagged tankers. In this manner, if pipeline capacity to supply New England in a cold winter was not enough, LNG from the Gulf Coast could be easily shipped to terminals in Boston. Do you think that would be a good idea?

Smith: The Act of Navigation very properly endeavours to give the sailors and shipping of Great Britain the monopoly of the trade of their own country, in some cases, by absolute prohibitions, and in others, by heavy burdens upon the shipping of foreign countries. The Act of Navigation is, perhaps, the wisest of all the commercial regulations of England.

Platts: Trump has stated that steel tariffs are essential for the national defense of the United States, but people are complaining that it increases costs for producers who use steel as an intermediate product.

Smith: It will generally be advantageous to lay some burden upon foreign industry, for the encouragement of domestic industry, when some particular sort of industry is necessary for the defence of the country. The defense of Great Britain, for example, depends very much upon the number of its sailors and shipping. Defense is of much more importance than opulence.

Platts: With over $2 trillion in imports, the U.S. could potentially raise a lot of tax revenue through tariffs. Yet critics of protectionism will often state that tariff levels sufficient for protection are so high they will not raise very much revenue. Is this not the case?

Smith: High taxes, sometimes by diminishing the consumption of the taxed commodities, and sometimes by encouraging smuggling frequently afford a smaller revenue to government than what might be drawn from more moderate taxes. By removing all prohibitions, and by subjecting all foreign manufactures to such moderate taxes as it was found from experience, afforded upon each article the greatest revenue to the public, our own workmen might still have a considerable advantage in the home market; and many articles, some of which at present afford no revenue to government, and others a very inconsiderable one, might afford a very great one.

For a “softball” interview of Adam Smith by Stuart Anderson at Forbes, click here.

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Warren Platts
About Warren Platts 1 Article
Chief Scientist at Technology Elevated LLC Classical conservative; economic nationalist.

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