In a world where the global economy bristles with grievances, lamentations and threats, the U.S. tariffs against China arouse anger and incomprehension. Labeled as retrograde protectionism, these tariffs – of up to 145% – are nonetheless defensible in the light of Adam Smith, titan of liberal thought. Far from caricatures, Smith, in The Wealth of Nations (1776), was no zealot of unilateral free trade. His nuances, rooted in pragmatism, offer a surprising reading grid for understanding Republican politics.
China closed
Let’s start by setting the scene. The United States, in imposing these tariffs, aims to rebalance a Sino-American trade relationship that it deems iniquitous: an abysmal trade deficit ($400 billion in 2018, before the first tariffs), systematic and even systemic theft of intellectual property by Beijing, and a worrying strategic dependence for key sectors such as steel or semiconductors.
Purists cry scandal, invoking free trade and peace through commerce. But what is Adam Smith really saying?
The author of The Wealth of Nations certainly despised artificial restrictions. Take his criticism of tariffs favoring local monopolies: “To give the monopoly of the home-market to the produce of domestic industry, in any particular art or manufacture, is in some measure to direct private people in what manner they ought to employ their capitals, and must, in almost all cases, be either a useless or a hurtful regulation.” (Book IV, Chapter II). At first glance, U.S. tariffs, by protecting American steel or electronics, for example, are open to criticism. They distort the market, make goods more expensive for the US consumer, and risk diverting capital to less competitive industries. The figures bear this out: tariffs cost around 0.2% of US GDP in 2019, a toll paid by households via higher prices.
First exception: national defense
But Smith did admit exceptions, and the first resonates with US rhetoric: national defense. The Navigation Act, or more precisely the Navigation Acts, refers to a series of laws passed by the British Parliament between 1651 and 1733 to regulate trade within the British Empire. Their aim was to maintain England’s strategic and maritime primacy. Let’s read Smith: “The act of navigation is not favourable to foreign commerce, or to the opulence which can arise from it… As defence, however, is of much more importance than opulence, the act of navigation is, perhaps, the wisest of all the commercial regulations of England.” (Book IV, Chapter II).
Trump’s aim in taxing Chinese steel from 2018 is not just to resurrect American blast furnaces (although the symbol has panache). It’s about reducing dependence on a geopolitical rival whose rise threatens American security. In 2017, China produced 50% of the world’s steel – with an output of around 831 million metric tons out of a global total of around 1.69 billion tons, according to World Steel Association data – often subsidized, crushing competitors with fire-sale prices. If America loses its ability to produce strategic materials, what does it become in the event of conflict? A nation of traders, influencers, and woke whiners? Smith, a pragmatist, would have understood the argument: security takes precedence over short-term advantage.
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