 Hi there, my name is Don Boudreau. I'm a professor of economics at George Mason University and a senior fellow at George Mason's Mercatus Center And I'm here today to talk about Adam Smith and his views on trade and the economy. So let's get started Very good. This is the one Genuine exception that Adam Smith carved out to a policy of free trade the one genuine exception That's economic rather than non-economic or political or national defense Today we call this the the retaliatory tariff exception global free trade is The best of all possible worlds where there are no tariff barriers whatsoever It's not the world we live in governments are always imposing import restrictions of one sort or another nearly all governments There are very few exceptions to that to that rule. And so Adam Smith as an intellectual matter Pointed out that yes, of course, it's possible. He recognized it's possible that the home government by imposing a tariff on a foreign government that imposes tariffs The home government tariff might pressure the foreign government into lowering its tariffs tariffs are always This is always one of the justifications trotted out for tariffs Donald Trump's tariffs have been Justified people attempted to justify Donald Trump's tariffs on on this basis in the case of in the case of Real-world policy Not just president Trump's tariffs, but almost all other tariffs It's just as with the national defense Exception it's just too easy. Oh, we're weird. We're not we're not Protectionist perish the thought we're free traders. In fact, we're more free traders than you. We want to make the world We want to make world trade even freer. That's why we're using tariffs This is politically unrealistic, of course because the tariffs that are imposed at home or take a look at them they're nearly always imposed at the behest of politically well organized domestic producer groups these politically organized domestic producer groups are not interested in making the World freer World trade freer. They're interested in protecting themselves from from competition a couple of things to say in in in specific response to that first of all history is not very kind to that thesis History knows very few instances where a tariff imposed in one country Can be said to have caused another government another foreign government to lower its tariffs The the set isn't empty. There are a handful of instances in which that happens Adam Smith mentions a couple in the wealth of nations but they were very rare if you look in history at Actual instances where global tariffs have fallen what you find is tariffs fall when there are Multilateral trade negotiations most famously most successfully with the general agreement on tariffs and trades starting in 1947 That came to WTO 25 years ago in 1995 a second thing to say in In on this matter as it relates to Adam Smith So in in his famous biography intellectual biography of Adam Smith, Dougal Stewart Who was a who knew Smith? He was a student of Smith Few years after Smith died, Dougal Stewart delivers a long paper on the life of Adam Smith and in that Piece by that long paper by by Stewart He says I forget his exact words, but he says Yes, Adam Smith carved out this exception what we call today the retaliatory tariff Exception, but he really did so not because he thought it was a good policy to follow he did so because he was a scholar and He wanted to recognize the full range of logical possibilities and that is among a lot That's one of the the possibilities that is is is imaginable that Raising tariffs at home can cause tariffs abroad to fall, but it wasn't really something that Smith had much Confidence in and if you read the wealth of nations as soon as Smith mentions this possibility he immediately Issues exceptions to it he explains why it might not work why it's likely to not work He explains how the the even if it does work the benefits Will be captured by one group of people in the country with the cost being imposed or another group of people in the country which is hardly equitable and Smith I have I have it here because I knew this question was coming. I love this passage from Adam Smith This is from book four chapter Chapter two. This is Smith. He says 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 The recovery of a great foreign market will generally more than compensate the transitory inconvenience of paying dearer doing during a short time for some sorts of goods To judge Whether such retaliations are likely to produce such an effect does not perhaps belong so much to the science of a legislation Legislator whose deliberations ought to be governed by the general print by general principles Which are always the same as to the skill of that insidious and crafty animal Vulnerally called a statesman or politicians a politician whose councils are directed by the momentary fluctuations of affairs Smith is saying Look, the people who will carry out any such policy Don't think that they are these wise Statesmen or stateswomen who sit back and judge the matter in a sober way and will use that power Only when it has some genuine prospect of working. He's saying no, no, no, it's the crafty It's the crafty and vulgar animal sitting in the legislative door who is interested only in short-term consequences That is who will carry out this policy. So this was Smith's way of Very cleverly Warning against this policy of using retaliatory tariffs. So, yes in short in principle, they can work We have very little Evidence from history that that such tariffs do work and Adam Smith himself was clearly no fan of using these Tara using tariffs in this way in practice You