Adam Smith on Retaliation

by Don Boudreaux on January 24, 2012

in Adam Smith, Politics, Trade

Here’s a letter to the Weekly Standard (HT Roger Ream):

Angry at China for allegedly selling goods to Americans at artificially low prices, Irwin Stelzer unsheaths a mighty sword to rip the case for unilateral free trade: Book IV Chapter II of The Wealth of Nations (“Tariffs not Tax Breaks,” Jan. 30).  But only by reading selectively can Stelzer conclude that “Adam Smith does not counsel sitting idly by while his nation’s tradable goods industries are devastated by a predatory competitor.”

Smith, of course, understood that it’s sometimes theoretically possible for a government to retaliate against protectionist foreign governments in ways that generate positive results for citizens of the home country.  (No serious economist has ever denied this fact.)  Contrary to the impression left by Stelzer, however, Smith was highly skeptical of the practicability of such retaliation.

For example, Stelzer is correct to note that Smith recognized that “The job of doing all of this [retaliation] requires ‘the skill of that insidious and crafty animal, vulgarly called a statesman or politician.’”  But what curiously derisory terms Smith uses here to describe officials allegedly to be entrusted to practice socially beneficial retaliatory protectionism!  And sure enough, as we read on we discover that the lesson Smith drew from this political reality is the opposite of that drawn by Stelzer.

For Smith, entrusting “insidious and crafty” officials to impose retaliatory tariffs is to invite special-interest-group mischief.  In the second half of the paragraph [#39] in which he calls politicians “insidious and crafty,” Smith describes how retaliatory tariffs in practice are, indeed, poorly used.  And he closes that paragraph with this lament about the unavoidable influence of politically powerful producers: “Those workmen, however, who suffered by our neighbours prohibition will not be benefited by ours.  On the contrary, they and almost all the other classes of our citizens will thereby be obliged to pay dearer than before for certain goods.  Every such law, therefore, imposes a real tax upon the whole country, not in favour of that particular class of workmen who were injured by our neighbours prohibition, but of some other class.”

Your readers would do well to read Smith directly rather than to rely upon Stelzer’s misleading interpretation.

Sincerely,
Donald J. Boudreaux
Professor of Economics
George Mason University
Fairfax, VA  22030

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