Tariffs make us poorer

Today’s post at EconLog addresses a claim about Adam Smith’s exceptions to his opposition to tariffs that both misunderstands and over-applies Smith’s exceptions to automatically condemning tariffs.

It starts with a claim that Smith argued that retaliatory tariffs work and are good. This understanding was so widespread that it appeared in the biography of Adam Smith in the Concise Encyclopedia of Economics (with a correction in 2014—I agree with David’s correction).

In the 2010s, mentions of this claim started to pick up in conservative circles, and so it was on hand to defend the Trump 1 tariffs. Along the way, the argument bled toward a claim that Smith believed that some tariffs were better for wealth creation than free trade. But that’s wrong. Smith argued that the benefit of national defence was worth the economic cost of managing trade. He argued that a short-term cost, which is still a cost, might be worth paying for the benefit of freer trade.

Let those claims cook for a decade on the internet, and today you might hear that we don’t know what the effect of many tariffs on many countries, and that Smith’s defence of tariffs gives us reason to doubt that we could know. But we do know. We know because the cost of tariffs is determined by Smith’s most foundational observation: that the division of labour allows us to create more wealth.

Read more:

EconLog has had lots of good trade war content.

I liked Dave Hebert’s article in The American Spectator about what I agree is the most damaging aspect of Trump II’s tariffs: the uncertainty. I don’t think the genie’s going back in the bottle.

Justin Ling’s piece on McKinley and Navarro remains relevant.

Featured image is a portrait of Adam Smith embellished by Jacob T. Levy.