Shortly after the “Emancipation Day” tariff was announced in April, Janet Bufton wrote a great article about whether Adam Smith would approve of so-called “reciprocal” tariffs. I also quoted her post here. In both cases, we argued that these tariffs did not comply with Mr. Smith’s claims and therefore Mr. Smith would not have approved them.
Six months later, there are four good pieces of evidence that the U.S. tariffs did not meet Mr. Smith’s approval.
First, as we have previously discussed, these tariff rates are independent of restrictions placed on U.S. exports by foreign countries. Rather, they are based on trade deficits and opaque motives of the executive branch.
Second, a small number of these tariff-motivated “trades” resulted in higher tariffs rather than lower tariffs.
Smith’s discussion of reciprocal tariffs can be found in The Wealth of Nations, Volume 4, Chapter 2 (WN, Freedom Fund/Glasgow Edition, pages 467-468). Smith writes:
There may be good policy for this type of retaliation if it may require a repetition of the high obligations or prohibitions complained of. The recovery of great overseas markets will generally more than compensate for the temporary inconvenience of paying high prices for certain goods in a short period of time.
Note the two conditions on tariffs that Smith requires to qualify as good policy.
This tariff resulted in retaliation for foreign tariffs. Domestic tariffs are temporary and short-lived and are repeated when foreign reductions take effect.
In some cases, new trade agreements have lowered tariffs on U.S. exports. Therefore, the first condition is satisfied. But all of this results in higher tariffs on foreign goods becoming permanent. The second condition is not met.
A third piece of evidence is that the Trump administration frequently cites mercantilist justifications for tariffs (e.g., their argument before the U.S. Court of International Trade, the Federal Court of Appeals, and perhaps the Supreme Court that the trade deficit constitutes a national emergency). Reciprocity and negotiation are often omitted or downplayed. Smith rather explicitly calls this type of argument “absurd” (WN 488).
Finally, the Trump administration is counting on decades of tariff revenue. That certainly means these are not temporary bargaining tools. It makes no sense to talk about permanent tax revenues from temporary tariffs.
Adam Smith certainly would not approve of these tariffs. Rather, he would have rejected them. Smith dismisses the mercantilist grounds on which they are based as “absurd.” From a revenue perspective, they violate his maxims (WN 825–827), including the maxim that taxes should not be arbitrary (WN 825). Given how often these tariffs are adjusted or imposed without warning, they also violate the non-arbitrary principle.
There is a habit of fabricating ex post facto justifications for tariffs on Smithian grounds. Rather, I think we should take Donald Trump and his administration at their word. They are thoroughly mercantilist. And Adam Smith did not approve of mercantilism.
