Adam Smith’s lesson

In the 1st chapter of Book 4 of his most emblematic work, the wealth of nations, Adam Smith identifies two types of import restrictions, and the second deals with « restrictions on imports of goods of almost all kinds, of those specific countries with which trade balance was supposedly disadvantageous. » It is precisely this that best fits the current American situation, with Donald Trump claiming that the US is being « stolen » because of commercial deficits. Now, in the 3rd chapter of Book 4, Adam Smith deepens the irrationality of this premise: « Although it was certain that, in the case of free trade between France and England, for example, the balance would be favorable to France, it would not be followed that such a trade would be disadvantageous to England. » And this is because, in its logic, England would benefit from the purchase of French products with similar or higher quality than if it bought them to another country with whom the trade balance was more favorable, even if it implied a superior commercial deficit with France.

In addition to this logical argument in favor of freer trade, Smith presents another one that also fits the situation that the United States today face: « Most of the (products) could be re -exported to other countries, where, being sold with profit, it could bring back an equal return, perhaps, to the main cost of the entire imported French good ». Given that, as Larry Summers, Bill Clinton’s Treasury Secretary, stated, 45% of US imports represent inputs for future exports, allowing Americans to profit much more, thus streamlining the national economy, this point of Adam Smith should of course be considered. Not following your advice is a clear shot in the foot (which may well be in the head).

So let’s look at some concrete data that corroborate the Smithian vision of commerce. According to figures presented by Statista, the royal American GDP went from nearly $ 2,500 billion in 1945 to about $ 2245 billion in 2021, an increase that was accompanied by the increase in the value of global exports of the goods trade ($ 25 billion by 2022, according to UnCTad). In addition, in this same period, the consumer price index, as indicated by Fred, decreased from about 600 in 1945 to a level of less than 50 by 2020. Although the manufacturing sector, there is full employment and poverty has never been so low. With the numbers pointing to the benefits of a system based usually on globalization (unlike globalism) and free commerce, the protectionist thesis would lose traction, but a survey carried out in 2024 by the Pew Research Center shows that 59% of Americans believe that the US has lost more than they have gained from increased trade with other nations. The explanation for these numbers can reside in two factors: most of the population did not feel the harmful effects of protectionism and merchantist arguments, even though poorly logical and ethically questionable, are lined with a popularly seductive patina.

That said, with the story showing that free trade never fails to make nations more prosperous, we should all learn Adam Smith’s lesson.