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!”
READER COMMENTS
Craig
Apr 25 2025 at 10:08am
I would say that if we presume that my former doppelgänger in China can make things and sell in China and the US and I can do the same, I would suggest that the case for free trade between the two is absolutely self-evident. BUT if we presume that I can’t actually ship products to China at all, I don’t see why its controversial that I would prefer tariffs to the other taxes I am paying? The other taxes amounted to 56 cents off every dollar I earned all in, local, state and federal. Those taxes were killing me. I genuinely don’t see why once we introduce unfair trade practices into the equation it doesn’t become entirely rational for people to have fundamentally different tax preferences. [And let’s not forget that if it were up to me there would be no federal government at all!]
If the US government identifies China as a geopolitical adversary why shouldn’t Americans trading with China pay a tariff to pay for the defense against that geopolitical threat? Defense is superior to opulence, no? Did Adam Smith not say that?
Jon Murphy
Apr 25 2025 at 10:15am
People can have tax preferences, sure. I mean, some people want to tax the wealthy more, some less, etc. But regardless of people’s preferences, the results will stay the same.
I guess I don’t understand your point or its relevance to my post.
Craig
Apr 25 2025 at 10:30am
Well if I were allowed to have shipped products to China the trade deficit would have been smaller, obviously extremely marginally smaller of course, I’m not suggesting I would’ve materially moved the macro needle, but smaller nevertheless, no? To me I sense from Trump the concept that the trade paradigms are what lies at the root of the trade deficits.
Jon Murphy
Apr 25 2025 at 10:51am
Probably not, no.
I don’t know. I’ve seen no indication that he has any driving thought in his head other than “TARIFFS ARE GOOD.”
Warren Platts
Apr 27 2025 at 9:52am
No, he wouldn’t because Smith would be smart enough to realize that today’s trade regime based on floating fiat currencies instead of gold is utterly different from the regime in his day. Under a gold standard, trade deficits are self-correcting; obviously, that is not the case nowadays. And again, the mere fact that Smith was the 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, is a proof that he did not think that tariffs were harmful per se. After all it was his job to collect tariffs! I still think it would be a cool research project to go to Scotland and look through the archives to figure out how many free-traders (aka smugglers) were hanged without benefit of clergy under Smith’s watch.
Jon Murphy
Apr 27 2025 at 10:15am
A common mercantilist misconception, but incorrect. Smith devoted much of WN to demonstrating why it is incorrect; it’s why he lables concerns about the trade deficit “absurd.” Again, just about any international trade book will warn against such a misconception.
He does think tariffs are per se harmful. He explicitly says so (see, eg, his discussion of the Navigation Act). Also see my quote above. He also calls protectionist and mercantilist tariffs “a manifest violation of the mot sacred rights of mankind” (pg 582). Tariffs may serve a role, but like any government action, it is harmful. That is why Smith is a classical liberal.
Warren Platts
Apr 27 2025 at 1:31pm
Smith’s dear friend David Hume was the first to theorize that trade deficits are self-correcting under a gold standard. I could be wrong about this, but I don’t think Smith directly discussed Hume’s theory, although he certainly must have been aware of it.
ANY government action is harmful? No, Adam Smith never said that. Smith considered some services provided by the government (e.g., national defense, infrastructure, education) to be absolutely necessary! That doesn’t entail that he didn’t think there was plenty of room for improvement. And speaking of the government, if Smith thought tariffs per say are bad, then Smith taking the government job as head of the Scottish version of US Customs & Border Protection, would make him a hypocrite. Imagine if Trump offered Don Boudreaux the job of being the Commissioner of CBP. Don would never take that job, no matter how much it paid. Why? Because Dr. Boudreaux would think that would make him into a hypocrite. Therefore, being charitable, we should grant Smith the benefit of the doubt that he did not in any sense think of himself as being hypocritical by taking the job of Commissioner of Scottish Customs. Consequently, he must not have thought that all tariffs are per se bad. What he was against was prohibitory tariffs and other such measured designed to secure home monopolies on tradeable goods. But he was for judicious tariffs for purposes of raising revenue, protecting workmen from the “China Shocks” of his day, and for strategic purposes of national defense, etc.
Jose Pablo
Apr 30 2025 at 11:17pm
trade deficits are self-correcting
Who cares about that? Self-correcting or not, trade deficits are irrelevant.
In fact, you don’t even measure most of the trade deficits that you (as part of a group of individuals) are running.
You have no idea about the trade deficit with the rest of the world that you, as a Californian (or a New Yorker, or whatever your specific “state identity” is), run.
You have no idea of the trade deficit with “others” that you run as someone over 65 (or as someone under 25). And it is huge, and it will always be huge.
Why are all these “trade deficits” so irrelevant that you don’t even bother measuring them, while the trade deficit you run as part of the collective “citizen of the U.S.” is treated as somehow crucial?
The idea is absurd—except to the flat-earthers who now occupy the White House.
Knut P. Heen
Apr 29 2025 at 6:40am
I presume you know that Adam Smith ended his career as a custom official who took pride in catching smugglers.
Warren Platts
Apr 29 2025 at 10:57am
They know, but it kind of contradicts the narrative that Adam Smith was this uber-free trader. The reality is that Smith was what I would call a mild protectionist. Here is pirated article I wrote a while back on Smith’s protectionist views. (Having your work pirated is the best compliment!)
Jon Murphy
Apr 30 2025 at 8:03am
I wouldn’t say he “took pride.” It was just part of his job.
Regardless, I fail to see how that’s relevant to anything. He spent his career advocating for free trade, including as a customs official.
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