Adam Smith 'blesses' Trump tariffs

The overreaction by many to President Donald Trump's dramatic, new tariffs, for all of one week, stunned even us. Overreaction, that is, not from those on the left, but from those on the political right-particularly libertarians and free-market economists. To them, tariffs are the ultimate, and unforgivable, economic "sin."

This is quite odd, given that tariffs are just another tax. And for the USA, it is a tax with far less domestic impact on consumers. This is because, firstly, imports and tariff elasticities are relatively low. But secondly, and more importantly, because Trump's tariffs were "blessed" in 1776 by the godfather of free trade economics, none other than Adam Smith.

According to Smith, "There seem, however, to be [three] cases in which it will generally be advantageous to lay some burden upon foreign for the encouragement of domestic industry." (RELATED: $15 Billion And Climbing: Trump's Tariffs Deliver Record High Revenue)

"The first is, when some particular sort of industry is necessary for the defence of the country."

"The second case…is, when some tax is imposed at home upon the produce of the latter. In this case, it seems reasonable that an equal tax should be imposed upon the like produce of the former."

"The [third] case…is, when some foreign nation restrains by high duties or prohibitions the importation of some of our manufactures into their country. 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."

The president's executive order on "Liberation Day," April 2nd, cites the same three exceptions to free trade, and in the same order, as did Adam Smith.

According to Trump's executive order, "Large and persistent annual U.S. goods trade deficits have…rendered our defense-industrial base dependent on foreign adversaries. [These] trade deficits are caused in substantial part by a lack of reciprocity in our bilateral trade relationships. This situation is evidenced by disparate tariff rates and non-tariff barriers."

The first case is not only about decoupling from Communist China for direct defense purposes but perhaps indirectly by weakening the CCP to the point of regime change, as Reagan did to the USSR. The second and third cases of reciprocity and retaliation are part of the Art of the Deal.

Most of those who were up in arms during the seven days, between imposition and pause, of the higher tariffs acted as though this was a world of actual free trade that Trump was purposely trying to undo. On the contrary, America has been hit for decades with substantial tariff and non-tariff barriers by friend and foe alike.

President Trump is using tariffs to take down those barriers, commenting, "Man, is it good for negotiation." Adding, "I've had countries that were potentially extremely hostile coming away and say 'Please sir, stop with the tariffs. Stop.' They would do anything."

Trump's critics also complain that his tariffs are inflationary. They aren't.