Last week, we surveyed Adam Smith’s first few exceptions to free trade, namely (i) his unconditional defense of tariffs designed to promote national security, (ii) his case for what I like to call “targeted tariffs”, i.e. duties on specific imports when equivalent domestically-produced goods are subject to local excise taxes; and (iii) his qualified defense of reciprocal tariffs. Today and tomorrow, we will take a closer look at the last of Smith’s exceptions.

To begin with, the main thing to note here is that Smith’s fourth and final exception to free trade is a limited one: it applies only to those trade barriers — whether they consist of “high duties” or outright “prohibitions” — that are already in place. (See Wealth of Nations, IV.ii.40.)

Specifically, if the sudden removal of such pre-existing trade restrictions would generate mass unemployment at home, Smith makes a humanitarian plea in favor of a gradual — not a sudden or all at once — return to free trade, or in the immortal words of the Scottish philosopher-economist: “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” (ibid.). Otherwise, “Were those [pre-existing] 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” (ibid.).

Nevertheless, although Smith concedes that opening protected industries to unbridled free trade in one fell swoop might wreak havoc at home by throwing a lot of people out of work — “The disorder which this would occasion might no doubt be very considerable” (ibid.) — at the same time, he also explains why this disruption “would in all probability … be much less than is commonly imagined …” (ibid.), and in the course of explaining why this fear is exaggerated, Smith ends up making a slam-dunk case for free trade! Stay tuned, for I will turn to this part of Smith’s ingenious argument in my next post.