4.2 Restraints on Importation
The intent of restraining the import of foreign goods, either by charging duties or utterly forbidding import, is to protect domestic industry from competition of cheaper foreign goods. In some instances, prohibition is placed on like goods, in others on raw materials, and in still others, against goods that might be substituted. In the history of Britain, a wide variety of goods have been subjected to restriction at various times.
It has been evident, in some instances, that such restrictions succeeded in their intended effect in the domestic market, but even in those instances, the result was to the detriment of the consumer, compelled to pay a higher price for goods than he might have if foreign goods were available or, in some cases, having to do without. But this is not the only reason for which restrictions on trade are disadvantageous.
Efficiency of Domestic Production
The general industry of a society can never exceed what the capital of society can employ. That is to say that every individual gives as much exertion as he cares to provide to the most advantageous course of action available to him - which is to say, the work at which he is the most productive - and any interference with this arrangement is detrimental not only to the individual who is unable to be fully employed at the activity in which he is most productive, but to the society that does not receive the benefit of his greatest capabilities.
It's also the tendency of man to employ himself as near to his home as he can. Few peoples are migratory as a matter of custom, unless they perceive greater opportunity in a different location than in their present one. Every merchant will likewise seek to remain settled in a given location, so long as his shop can earn a sufficient profit, and will relocate his operation only if greater opportunity exists elsewhere. And every manufacturer or wholesale producer chooses a location proximate to the materials and labor they require to minimize the cost of transportation of goods, except in unusual instances where the cost of transporting finished goods to market exceeds that of transporting raw materials to their facility, in which case they will, like retailers, settle closer to their consumers than suppliers. And likewise, they will remain established in a location unless there arises greater benefit in being situated elsewhere.
There is also some degree of security in being in familiar environs, which contributes to the reluctance to relocate. A farmer has relative certainty in the productivity of the fields he has farmed ion years past, and has some suspicion of any opportunity elsewhere, and may be content to accept the level of production with which he is familiar rather than to accept the risk that an opportunity that appears more advantageous will actually bear out to be so. The reluctance of workers, merchants, and manufacturers depends more on their connections with other people from whom they buy and sell the materials they need, and the prospect of starting over in a different place requires the re-establishment of connections to achieve a profit.
There is also the notion that production in a given area contributes to the economy of that area: the worker in a factory is also a consumer of the goods of that factory, as are the farmers who supply the raw materials , who also gain a greater efficiency of production and offer fairer prices and preferential treatment to those who customarily and routinely purchase from them.
But in the matter of trade, each individual applies himself to the manner of endeavor, and his capital to the manner of investment, that grants him the greatest return. If a good is not in production in a given location, it is because the production of that good is not the best application of available resources. It is more likely, also, that men of a vicinity would make better and more efficient choices for themselves than would any government, less familiar with their circumstances, would be capable of choosing on their behalf.
Thus, to attempt to encourage by legislative means a production in a domestic industry that is not considered advantageous to the citizens themselves must, in almost all cases, be a useless or harmful regulation. One does not compel the tailor to make shoes or the cobbler to make clothing, but allows each to pursue the most productive course for himself and to trade among themselves.
In the same way, it is detrimental to a community to encourage or compel them to manufacture any goods that could be more efficiently be produced in another community and obtained by means of trade. And again, this principle maintains, regardless of whether an arbitrary boundary of political jurisdiction separates them.
Advantage and Disadvantage to Specific Endeavors
The merchant and manufacturer derives the greatest benefit of foreign trade restrictions. If they are in possession of a considerable store of durable goods they were previously unable to sell, the elimination of foreign competition enables them to clear their stores at a price that local residents were previously unwilling to pay for them.
The continued lack of foreign competition enables them to continue in lines of business tat would not be profitable in a competitive market, and the lack of foreign goods to be had makes customers inclined to purchase their products that, while of inferior quality and higher price, are the best quality and price to be had, absent other options.
Manufacturers are disadvantaged only by restriction of the goods they require for the production of their own. In these instances, cheaper materials from foreign lands cannot be obtained, and they must obtain the more expensive domestic product, increasing their cost of manufacture and decreasing the quality of their goods, the latter in instances where foreign materials were of higher quality.
Agricultural producers are seldom impacted by the import of foreign goods, by the nature of their product: cattle are very expensive to transport by sea, and the value of wheat is so little compared to its bulk that domestic prices would have to be very high, indeed, to make imported wheat less expensive by comparison. As such, farmers and herders have very little anxiety about foreign competition, and government has found little need of such restrictions.
(EN: I wonder if this remains true in the present day. Given the speed of shipping, it ability to move great quantities of goods, and advances in preservation and refrigeration of perishable commodities, obstacles to foreign trade have been removed, and it is not uncommon for the grain of North America to be sent abroad, and for the produce of South America to flow into North American markets, albeit the opposition of growing seasons makes direct competition unlikely.)
The Argument in Favor of Tariffs
While the practice of restricting international trade seems in general to be pointless or noxious, Smith concedes two specific situations in which it might be considered advantageous.
The first is when some particular sort of industry is necessary for the defense of the nation. The example given is of ship-building in England. Even though it would be preferable in time of peace to refrain from preventing merchants from purchasing ships of foreign manufacture, this would create in England a scarcity of the facilities and skilled labor for the building of ships - and in a time of war, when it becomes impossible to obtain ships from abroad, England might find itself bereft of a naval force unless there were domestic facilities for their manufacture in a timely and competent manner.
Additional consideration is given to the shipping industry, the chief problem of which is that a ship is considered the territory of its nation of origin. So in addition to the lack of naval ships, England would find the whole of its foreign trade subjected to the whims and wiles of other governments were British goods to be carried entirely on foreign vessels.
The second instance is in fairness, or more aptly an equal measure of unfairness, in taxation: when a tax is placed on production of any good in the domestic market, it should also be levied of any foreign good of the same kind that is imported. Such taxes on domestic goods are the equivalent of a tariff on foreign goods in that they artificially increase the price to the consumer, placing them and an unfair disadvantage unless the same unnatural increase is visited upon imported goods as well.
The notion of taxation opens yet a deeper wound: given that the cost of taxation is borne not by the producer who pays it but on the consumer of his goods, every tax upon industry is an unnatural increase in the price of goods. Hence, if there is a tax on land, on rent, on labor, on transportation, or on any expense paid by a producer of a good, it is the equivalent of a tax on the price of the good to the consumer.
And since such taxes are not directed at a specific good, they increase the price of all goods: a tax on land increases the price of cotton, increases hte price of cloth, increases the price of clothing. And in fact, it increases the price of all goods grown upon the taxed land. As such, there is some suggestion of a tax to be placed on all foreign goods manufactured in countries where the taxation of citizens is less than that paid by domestic citizens, to level the playing field between the competition of all goods.
Restoration of Free Importation
The remedy for the disadvantages of tariffs on trade would seem obvious: to simply lift all tariffs on imported goods to a market and allow free competition to restore the balanced to international markets. There are, however, sundry reasons or excuses that nations produce in defense of the continuance of tariffs.
Primarily, it is a matter of petty contention among the governments of state to place tariffs on the import of their goods, either as a method of denouncement or of retaliation for tariffs charged on goods exported to another market. There is great reluctance to unilaterally remove tariffs unless the other nation is amenable to doing the same, and while nations are quick to unilaterally impose tariffs on one another, they are reluctant to engage in negotiations for their abatement without mutual concession.
Trade sanctions are a method of competition among nations, less damaging than the open conflict of warfare, but largely based on the same principle of attrition: in any act of military conflict, victory is had by the side that can best bear the hardships of replenishing the men and materials necessary to maintain their military forces. In any act of trade conflict, victory is had by the nations whose citizens are best able to bear the hardship of higher costs and fewer goods in the domestic markets. The devastation of the welfare of the citizens of one nation is equivalent, though in conflicts of trade, it is less dramatic and more prolonged.
There is also the notion that, were duties and prohibitions to be removed all at once, cheaper foreign goods would be poured into the market so quickly as to deprive many thousands of citizens of their ordinary employment and means of subsistence without providing adequate time for them to transition their skills and capital to other industries.
Smith considers such a consequence to be theoretically possible, but highly improbable. Unless the citizens of a nation have great wealth to make immediate purchase of foreign goods, they must find a means of earning the capital and producing goods to be traded in return. Thus, there could be no sudden rush of foreign goods into a market without an acceleration, in equal magnitude, of production within the domestic market.
As to the capability of men to make quick transition from one profession to another, Smith refers to the historical incidence of the cessation of warfare, at which time a great multitude of soldiers and sailors are at once returned to their homeland and are in immediate need of finding employment. In such instances, this surplus of labor quickly assimilates into civilian professions, and with few exceptions, the prosperity of nations shows drastic improvement shortly after the end of a military conflict.
Even so, Smith concedes that the complete restoration of free trade in Britain is so unlikely as to be "absurd." The desires of the politicians, the prejudices of the public, and the interests of those who profit from an imbalance of trade staunchly oppose it. The profits and resulting power of an unnatural imbalance of trade fall to the hands of those who are inclined to use that same power and profit to perpetuate a situation, and those who would benefit the most are so impoverished by their existence as to lack the wherewithal to overcome such opposition.