prior probability

Via Wikipedia (links and footnotes in the original), I stumbled upon this remarkable anecdote of the time when Mario Vargas Llosa punched Gabriel García Márquez in the face:

“In 1971, Vargas Llosa published García Márquez: Story of a Deicide (García Márquez: historia de un deicidio), which was his doctoral thesis for the Complutense University of Madrid.^[36][37] Although Vargas Llosa wrote this book-length study about his then friend, the Colombian Nobel laureate writer Gabriel García Márquez, they did not speak to each other again. In 1976, Vargas Llosa punched García Márquez in the face at the Palacio de Bellas Artes in Mexico City, ending the friendship.^[38] Neither writer publicly stated the underlying reasons for the quarrel.^[39] A photograph of García Márquez sporting a black eye was published in 2007, reigniting public interest in the feud.^[40] Despite the decades of silence, in 2007, Vargas Llosa agreed to allow part of his book to be used as the introduction to a 40th-anniversary edition of García Márquez’s One Hundred Years of Solitude, which was re-released in Spain and throughout Latin America that year.^[41] Historia de un Deicidio was also reissued in that year, as part of Vargas Llosa’s complete works.”

See also this story about the quarrel in El País as well as footnotes 38 and 39 below the fold.

Did you know that literary giant Mario Vargas Llosa was once the leading presidential candidate in the 1990 Peruvian general election? Although Vargas Llosa won the first round with a narrow plurality, his opponent, Alberto Fujimori, won the election in the runoff round. Below is a recording of the 1990 debate between Vargas Llosa and Fujimori:

I was first introduced to the great Mario Vargas Llosa in college — I was a Spanish literature and political philosophy major — and instantly became a fan of his classical liberal politics and a lifelong reader of his works. Here are two obituaries: one by the BBC; the other, El País.

Via Wikipedia: “If I Didn’t Love You” is a song recorded by country music singers Jason Aldean and Carrie Underwood, released on July 23, 2021, as the first single from Aldean’s 2021 studio album Macon, Georgia …

Conclusion: A Smithian Defense of Donald Trump’s Trade Madness?

I will conclude my “Smith versus Trump” series today by explaining why, when it comes to trade policy, Adam Smith and Donald Trump might be on the same page, after all. In summary, while it’s true that President Trump’s despotic “liberation day” anti-trade decree cannot be defended on either humanitarian or national security grounds (see my previous two posts), what if Trump’s trade policy were a calculated gamble or negotiating tactic to get other countries to open their markets and agree to unconditional free trade?

To begin with, according to Donald Trump and his MAGA defenders, the current global trading system is rigged against us (see here, for example), for many of our trading partners have been “ripping us off” for years, especially through disguised non-tariff barriers. (For further reference, check out this primer on “Tariff and Non-Tariff Barriers Imposed on the United States by Foreign Nations” by Paige Hauser.) Assuming for the sake of argument that this premise is true, then not only does President Trump have a point; he also has no less an authority than the great Adam Smith on his side! Let me explain.

Although Adam Smith makes a strong case for free trade — indeed, I am a lifelong free-trade libertarian because of Smith –, the Scottish philosopher-economist is also a realist. He concedes in Book IV, Ch. 2 of The Wealth of Nations that when one country imposes trade barriers on another country, revenge and retaliation are in order. Or in the immortal words of the great Adam Smith himself: “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” (WN, IV.ii.38).

But at the same time, Smith also makes it clear in The Wealth of Nations that the ultimate or end goal of revenge tariffs should be to open 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” (WN, IV.ii.39). Furthermore, Smith defends the temporary harms caused by revenge tariffs on instrumentalist grounds: “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” (ibid.). Sound familiar?

So, if you agree with President Trump’s premise that other countries have been “ripping us off” for years (admittedly, a big if, for this premise might not be true of all countries), and if you agree with Adam Smith’s argument that revenge tariffs are justified so long as the overall or long-term goal is to promote free trade (another big if, since revenge tariffs could trigger a destructive “tit-for-tat” trade war; cf. the cartoon below), then why not give Donald Trump — as erratic, fickle, and despotic as he may seem — the benefit of the doubt? On this view, perhaps there is a method to Trump’s trade madness.

To sum up, President Trump’s trade policy is either an astute and cunning ploy designed to usher in a new golden age of peace and prosperity, or it is a desperate and dangerous gamble that could blow up in our faces, igniting a destructive worldwide trade war and making everyone worse off in the short and long run. Either way, Trump has decided to begin his second term with an ambitious but risky venture, a high-stakes strategem whose final outcome is uncertain. Is this wager worth taking? Alas, only time will tell …

Previously (see here), I explained why Adam Smith’s so-called “humanitarian” exception to free trade does not apply to President Donald Trump’s despotic “liberation day” anti-trade decree. Simply put, Smith’s humanitarian argument applies only to tariffs that are already in place, not to new ones (like Trump’s). But Smith makes two additional departures from the “freedom of trade” in The Wealth of Nations: one is national defense; the other, revenge. Let’s take a closer look at each of these Smithian loopholes to see if either exception applies to the case at hand: Trump’s across-the-board 10% tariff on most foreign imports.

Let’s start with Adam Smith’s national security exception. In Book IV, Chapter 2 of The Wealth of Nations, Smith defends trade barriers that are designed to protect certain sensitive industries (like shipping in Smith’s day) that are essential to or indispensable for national defense, i.e. a country’s ability to protect her borders and her people from foreign invasion. (Sound familiar?) The Scottish philosopher-economist illustrates this exception with the Navigation Acts, a series of draconian mercantilist laws designed to restrict England’s cargo trade to English ships. (Among other things, these onerous laws prohibited the use of foreign ships and required the employment of English and colonial mariners for 75% of the crews.) For Smith, “defence … is of much more importance than opulence” (WN, IV.ii.30). Why? Because without protection from foreign invasion — as well as law and order at home, I might add — free and fair exchange would be difficult, if not impossible. National defense is the sine qua non of trade. [*]

Nevertheless, although the ambit of “national defense” is no doubt a broad and elastic one (see, for example, the infographic below), common sense tells us that we cannot employ Smith’s national security argument to justify the Trump administration’s despotic decision to impose a new round of blanket and indiscriminate tariffs on almost all imports or to flout our free trade treaty with our longstanding North American allies, Canada and Mexico. At most, Smith’s exception for national defense might justify specific and targeted export controls on such sensitive goods as computer chips, fighter jets, and telecommunications equipment. But this still leaves one last Smithian exception to free trade: reciprocal or tit-for-tat tariffs, or what I prefer to call revenge tariffs. In brief, if we accept the Trumpian premise that our trading partners (China especially) have “ripped us off” through their nefarious currency manipulation schemes and other non-tariff barriers, then President Trump and his MAGA accolytes are indeed on much stronger footing!

Stay tuned, for I will further discuss Smith’s defense of “revenge tariffs” in my next post …

[*] As an aside, I would argue that Smith’s exception for national defense is part of his more general “state capacity” argument in Book V of The Wealth of Nations. In a word, we cannot have prosperity without peace, and we cannot have peace without a strong national government.

[Update: Yesterday afternoon (9 April), President Trump reduced his country-specific tariffs down to a universal 10% rate for all trade partners, except for China. See here, here, and here. Note: Trump’s universal 10% baseline rate went into effect today; only the higher tariffs — except for those on China –were postponed.]

At the very end of my previous post, I mentioned the sacrilegious possibility that, were he alive today, the great Adam Smith — patron saint of free trade and free markets — might actually defend Trump’s new round of tariffs on both humanitarian and instrumentalist grounds. So, what are these Smithian arguments, and are they persuasive?

Spoiler alert: I can say right off the bat that Smith’s humanitarian exception cannot be used to defend Trump’s tariffs. Why not? Because this exception is limited to trade barriers that are already on the books. It does not apply to new tariffs like Trump’s! Specifically, Smith’s humanitarian argument appears in Book IV, Ch. 2, para. 40 of The Wealth of Nations, where Smith concedes that “freedom of trade should be restored only by slow gradations, and with a good deal of reserve and circumspection” when the sudden removal of existing restrictions on trade would cause mass unemployment at home. In other words, Smith is willing to tolerate pre-standing trade barriers for a limited time in order to protect those workers who would otherwise lose their jobs if those restrictions were lifted all at once.

To recap, Smith’s humanitarian justification of existing tariffs is limited in scope: it applies only to tariffs that are already in place, not to new ones! That still leaves Adam Smith’s instrumentalist argument, however, which is going to be much harder to dismiss. I will turn to Smith’s instrumentalist exceptions in my next post.

Previously, I have surveyed Adam Smith’s four exceptions to free trade in Book IV, Chapter 2 of The Wealth of Nations (see my recap here), but at the same time I have left open the $64 question of their application to our contemporary times. Do any of President Trump’s “beautiful” new tariffs, for example, fall into any of Smith’s free-trade exceptions? Alas, this is not an easy question to answer because of the bewildering variety and sheer breadth of protectionist policies that Trump has despotically imposed by decree during the first 10 weeks of his second term. For a good overview of Trump’s “trade despotism” (my term), see this Wikipedia page on Tariffs in the second Trump administration.

For starters, let’s consider the centerpiece of Trump’s new mercantilism: a 10% across-the-board tax on imports from all nations. Recall that last week (2 April 2025), Trump signed a sweeping executive order imposing a minimum 10% tariff on all U.S. imports, including higher tariffs, ranging from 11% to 50%, on imports from 57 nations. For reference, here is the full text of Trump’s executive order. [*] Although there is a good chance this unilateral decree will be declared ultra vires (i.e. beyond the president’s Article II powers) by the courts, in the meantime, however, allow me to play the Devil’s advocate (advocatus diaboli). Brace yourselves, for in my next few posts I will try to pass — nay, ace! — Bryan Caplan’s demanding “ideological Turing test” by considering several arguments that Adam Smith, were he alive today, might have made to defend Trump’s 10% tariff!

[*] Update: President Trump postponed all his country-specific higher tariffs — except for those on China — for 90 days, but the 10% baseline tariff still applies to most goods imported into the United States. My understanding is that the 10% baseline rate was NOT postponed.

I hate to be “that guy” — especially among my fellow libertarian friends — but the more I study the law and economics of tariffs in U.S. history, the more I realize that my colleague and co-author (see here) Salim Rashid is most likely right about the limited influence of Adam Smith’s Wealth of Nations on economic policy during his (Smith’s) own lifetime (see here, for example), and the more I can begin to comprehend the popular appeal of President Trump’s pro-tariff policies. For a good overview of the history of tariffs in the United States, see here. Alas (spoiler alert), tariffs and protectionist policies at the national level were the norm, not the exception, when our republic was founded.

Two cases in point are James Madison’s Tariff Act of 1789 — the first major law passed by the first Congress! — and Alexander Hamilton’s 1791 Report on Manufactures. (The full text of Hamilton’s report is available here. ) Although Hamilton’s proposals for government bounties to promote domestic industries failed to receive support from Congress, virtually every tariff recommendation put forward in the report was adopted in the five-page Tariff Act of 1792. (See here.) That said, any intellectually-honest person has to agree that Adam Smith’s general argument against trade barriers is still spot on. The “problem” for us free traders, however, is that Smith himself made several pragmatic exceptions to his general free-trade rule. I will explore whether Trump’s new round of tariffs, including his 10% across-the-board tax on imports from all nations, falls into any of Smith’s exceptions in a future post.

In anticipation of my talk at an upcoming symposium this spring on “The Age of Trump: Projecting Policy and Legal Impacts in a Second Term” at the University of Saint Thomas (UST), I began blogging on Adam Smith’s timeless argument in favor of the “freedom of trade” with my 5 February post The Immortal Adam Smith. (FYI: I compiled my first set of Adam Smith-inspired blog posts 11 days later; see The ghost of Adam Smith.) In addition, I subsequently blogged about Smith’s four exceptions to free trade. For reference, links to my second set of Smith trade posts are assembled in one place below:

1. Adam Smith defends the Jones Act?
2. Smith’s defense of targeted tariffs
3. Smith’s digression on the necessaries of life
4. Two more Smithian exceptions to free trade: revenge and inertia
5. Smith’s qualified defense of reciprocal tariffs
6. Smith’s fourth and final exception to free trade
7. Adam Smith, absolute advantage, and free trade
8. The aftermath of the Seven Years’ War and Adam Smith’s defense of natural liberty
9. Adam Smith on the politics of free trade
10. Adam Smith’s theory of the second best

I then concluded my series on Adam Smith’s exceptions to free trade on 1 March with this post: Adam Smith on the freedom of trade: a coda. The question that I will leave as an exercise for the reader is this: does current U.S. trade policy fall within any of Smith’s pragmatic exceptions?