25: Colonial Trade
(EN: Interest in colonialism was naturally elevated at the time this book was written, but has had a resurgence in interest given globalization of the present day, in which the trade between industrialized nations and pre-industrial ones is often characterized as being the same nature.)
Adam Smith's objection to colonial trade is in preventing a colony from selling its products in the market that offers the best price: all product must be traded with the mother country, regardless of price, and the relationship is generally parasitic as a result of trade restrictions and tariffs placed on the colony.
It is suggested that this is also harmful to the world market in general, in that buyers are unable to obtain goods produced in the colonies of other nations. But in practice, a triangular trade exists: e.g., the Dutch cannot buy Jamaican sugar from the producer, but may buy it indirectly through a British broker.
There is some suggestion that colonial trade may also be damaging to the mother country, in that the importation of cheap product from a colony undercuts domestic producers, which is beneficial for consumers but detrimental to labor and landlords who lose wages and rent, though it has been shown that this merely frees these resources to engage in other pursuits, which they must do to have anything of value to trade in return.
The same theory applies to any treaty of trade where goods are imported from a foreign to domestic market at a lower price. Any nation that binds itself to a trade agreement sacrifices the opportunity to seek better partners for the duration of the treaty. Though this is generally done when the exchange of goods is considered favorable to both nations, when prices in the world market change, the two are as colony and mother country, with one's advantage being to the disadvantage of the other (or if the disadvantage is to both, then the treaty is cancelled by mutual consent).
All things considered, treaties of trade seem entirely unnecessary: if two countries find it to be in their mutual interest to enter into an agreement, trades will be treated among them without a formal agreement between their governments to do so, and as they have not entered into a long-term agreement, they may take a better offer the moment it arises. They need only agree to refrain from interfering in trade among their peoples, and the people will do so.
The "advantage" to the nation for whom treaties or agreements are favorable is, itself, nor more tenable than the paperwork. A customer who is compelled to pay a higher price for a good than it could be had elsewhere is pleased to be relieved of his obligation and immediately seeks other options. A vendor who is privileged to sell a good at a higher price is not encouraged to improve his operations or apply his capital to pursuits at which he is competitive, and finds himself bereft of income at the termination of an agreement. As such, dramatic shifts in commerce that can be destructive to industry are created or exacerbated rather than alleviated by treaties.
Also, the factors of production devoted to the production of one good (at which the producer is inefficient) means that these same factors cannot be applied to the production of another (at which the producer would be more efficient). In addition to the effect on production and industry, this skews their relative values to the consumer.
There are a few quotes from Smith on the specific instance of trade between Britain and her colonies aboard, which has harmed the mother country by making her own wares more expensive, and the price of domestic labor more costly.
(EN: Ironically, there is some parallel to modern-day America: merchants who complain about the cost of domestic labor making it difficult to compete, but who yet make significant profits of stock; a drain on domestic wealth as a result of purchasing cheap products from abroad and making less at home to give in exchange, etc.)