Great stuff Barry, as always, but especially worthwhile in today’s climate of non stop tariff talk.
It seems the only reason any two parties would trade with each other is that both believe they each benefit. Therefore, I have always been baffled that so many believe in the need for trade agreements. What for?
If one side of a potential transaction doesn’t benefit, they simply will not trade.
Now, perhaps a government might want to benefit certain businesses by reducing the competition to those businesses , but since there is always a trade-off, the cost of benefitting businesses is the harm done to consumers.
Businesses are not guaranteed any profits and must compete and earn whatever they can. Consumers should be able to buy whatever they want from whomever they want, and all government interventions reduce their ability to do so.
Barry, Is there any circumstance where Smith would approve of tariffs? I’m thinking of as leverage against unfair trade, labor and environmental practices by another country. If not, how might he propose dealing with it, or should it just be treated as factors in a consumer’s purchasing decision?
Neal, Smith did allow that in the hands of a well-intentioned politician, such policies might work in the short term. He quickly added, though, that such politicians probably don't exist.
As you say, consumers have power. Fair Trade certifications have become quite popular.
Finally, let's not impose 2025 USA standards on let's say Cambodia. If Cambodia had to fully abide by our rules, it would never develop and never lift its people out of poverty. It's hard to take, but what we would call sweatshops, they call a better life for their children.
Thanks Prof Brownstein. I love the grapes example!
Your article outlines why I've never understood or been remotely persuaded by the concept of "food miles" or campaigns to "Buy Australian" (I live in Australia).
Must get onto reading Adam Smiths original works one day!
You wrote, Smith then generalizes the principle: “What is prudence in the conduct of every private family, can scarce be folly in that of a great kingdom.” This assumes some sort of balance occurs in the value of the imports and exports. If our imports far exceed our exports, we are sending our wealth abroad without receiving an equivalent return. The prudent person doesn't incur unreasonable debt by spending more than they earn.
The problem is that the federal government has entirely failed to be prudent by incurring debt at an exponential rate and enacting policies that left our working class behind and disincentivized entry-level work. Some very significant changes need to occur, and it might be the case that tariffs could be a starting point to get us back to fiscal responsibility and vibrant personal enterprise. I don't want my great grandchildren to still be paying the national debt.
Robert, I appreciate your concerns about the national debt. It is not sustainable.
Tariffs will dig our hole deeper. The economy will shrink, and so will tax revenues.
Take Cambodia, it would be almost impossible for there to be no trade imbalance. A poor country they are shipping us real goods and taking depreciating dollars.
Here is what Smith wrote:
"Nothing, however, can be more absurd than this whole doctrine of the balance of trade, upon which, not only these restraints, but almost all the other regulations of commerce are founded. When two places trade with one another, this doctrine supposes that, if the balance be even, neither of them either loses or gains; but if it leans in any degree to one side, that one of them loses and the other gains in proportion to its declension from the exact equilibrium. Both suppositions are false. A trade which is forced by means of bounties and monopolies may be and commonly is disadvantageous to the country in whose favour it is meant to be established, as I shall endeavour to show hereafter. But that trade which, without force or constraint, is naturally and regularly carried on between any two places is always advantageous, though not always equally so, to both."
Great stuff Barry, as always, but especially worthwhile in today’s climate of non stop tariff talk.
It seems the only reason any two parties would trade with each other is that both believe they each benefit. Therefore, I have always been baffled that so many believe in the need for trade agreements. What for?
If one side of a potential transaction doesn’t benefit, they simply will not trade.
Now, perhaps a government might want to benefit certain businesses by reducing the competition to those businesses , but since there is always a trade-off, the cost of benefitting businesses is the harm done to consumers.
Businesses are not guaranteed any profits and must compete and earn whatever they can. Consumers should be able to buy whatever they want from whomever they want, and all government interventions reduce their ability to do so.
Martin, I appreciate the kind note.
Thank you, too, for reminding us of that crucial first principle of trade.
Barry, Is there any circumstance where Smith would approve of tariffs? I’m thinking of as leverage against unfair trade, labor and environmental practices by another country. If not, how might he propose dealing with it, or should it just be treated as factors in a consumer’s purchasing decision?
Neal, Smith did allow that in the hands of a well-intentioned politician, such policies might work in the short term. He quickly added, though, that such politicians probably don't exist.
As you say, consumers have power. Fair Trade certifications have become quite popular.
Finally, let's not impose 2025 USA standards on let's say Cambodia. If Cambodia had to fully abide by our rules, it would never develop and never lift its people out of poverty. It's hard to take, but what we would call sweatshops, they call a better life for their children.
Thanks Prof Brownstein. I love the grapes example!
Your article outlines why I've never understood or been remotely persuaded by the concept of "food miles" or campaigns to "Buy Australian" (I live in Australia).
Must get onto reading Adam Smiths original works one day!
You wrote, Smith then generalizes the principle: “What is prudence in the conduct of every private family, can scarce be folly in that of a great kingdom.” This assumes some sort of balance occurs in the value of the imports and exports. If our imports far exceed our exports, we are sending our wealth abroad without receiving an equivalent return. The prudent person doesn't incur unreasonable debt by spending more than they earn.
The problem is that the federal government has entirely failed to be prudent by incurring debt at an exponential rate and enacting policies that left our working class behind and disincentivized entry-level work. Some very significant changes need to occur, and it might be the case that tariffs could be a starting point to get us back to fiscal responsibility and vibrant personal enterprise. I don't want my great grandchildren to still be paying the national debt.
Robert, I appreciate your concerns about the national debt. It is not sustainable.
Tariffs will dig our hole deeper. The economy will shrink, and so will tax revenues.
Take Cambodia, it would be almost impossible for there to be no trade imbalance. A poor country they are shipping us real goods and taking depreciating dollars.
Here is what Smith wrote:
"Nothing, however, can be more absurd than this whole doctrine of the balance of trade, upon which, not only these restraints, but almost all the other regulations of commerce are founded. When two places trade with one another, this doctrine supposes that, if the balance be even, neither of them either loses or gains; but if it leans in any degree to one side, that one of them loses and the other gains in proportion to its declension from the exact equilibrium. Both suppositions are false. A trade which is forced by means of bounties and monopolies may be and commonly is disadvantageous to the country in whose favour it is meant to be established, as I shall endeavour to show hereafter. But that trade which, without force or constraint, is naturally and regularly carried on between any two places is always advantageous, though not always equally so, to both."
Robert, A recent essay explores the point you raised further: https://www.nationalreview.com/2025/04/the-surplus-americans-dont-hear-about/