As I mentioned in a previous post, President Trump recently signed an official memorandum calling for “fair and reciprocal” trade tariffs on all major U.S. trading partners. Putting aside the constitutional question of whether the Congress can delegate this power to the president, what would Adam Smith have to say about the merits of this executive action?

As we shall see in today’s post, it turns out that the Scottish philosopher-economist, were he alive today, would most likely find himself in grudging agreement with President Trump! Why do I say this? Because Adam Smith himself concedes in paragraphs 37 to 39 of Book IV, Chapter 2 of The Wealth of Nations that reciprocal tariffs may “sometimes” be a necessary evil. But at the same time, Smith’s defense of reciprocal tariffs is a qualified one. For Smith, reciprocal tariffs should be imposed only after careful “deliberation” and should be a temporary measure; specifically, they should be imposed only for the purpose of forcing other countries to open up their markets.

First off, the father of economics is a realist. He notes right off the bat that when one country imposes tariffs on another country, revenge and retaliation are in order: “Revenge in this case naturally dictates retaliation, and that we should impose the like duties and prohibitions upon the importation of some or all of their manufactures into ours. Nations, accordingly, seldom fail to retaliate in this manner” (Wealth of Nations, IV.ii.38, emphasis added). Smith then provides a historical example — the 17th-century French-Dutch trade war:

“That minister [Jean-Baptiste Colbert], by the tariff of 1667, imposed very high duties upon a great number of foreign manufactures. Upon his refusing to moderate them in favour of the Dutch, they in 1671 prohibited the importation of the wines, brandies, and manufactures of France. The war of 1672 seems to have been in part occasioned by this commercial dispute. The peace of Nimeguen put an end to it in 1678 by moderating some of those duties in favour of the Dutch, who in consequence took off their prohibition.” (Ibid.)

As an aside, why did Colbert decide to impose tariffs in the first place? Simply put, because he was duped by “the sophistry of merchants and manufacturers, who are always demanding a monopoly against their countrymen” (ibid., emphasis added). Nevertheless, although Smith is willing to concede that reciprocal tariffs — a better term would be “revenge tariffs” — are an inevitable reaction when other countries close their markets to us, for Smith revenge tariffs are, at best, a necessary evil: they should be imposed only after careful “deliberation” and only for the purpose of forcing other countries to open up their markets:

“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.” (Wealth of Nations, IV.ii.39, emphasis added)

But who measures this probability? Who decides “when there is a probability that [the imposition of reciprocal tariffs] will procure the repeal of the high duties or prohibitions complained of”? It is here where Smith makes one of the astute observations in all of political economy:

“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.” (Ibid.)

Now do you see why I started out by saying that Smith might find himself in grudging agreement with Trump? I will resume my series on Adam Smith in the next day or two.