Donald Trump, Adam Smith, and the American Trade Wars

U.S. Trade Representative Robert Lighthizer stands behind U.S. President Donald Trump as Trump prepares to sign directives to impose tariffs on imported washing machines and solar panels in the Oval Office at the White House in Washington, U.S. January 23
June 28, 2018 Topic: Trade Region: Americas Tags: Donald TrumpTradeEconomyTariffPolicy

Donald Trump, Adam Smith, and the American Trade Wars

The complex nuances of international trade are playing out on the public stage amid Trump era politics.

“The rich man glories in his riches, because he feels that they naturally draw upon him the attention of the world....At the thought of this, his heart seems to swell and dilate itself within him, and he is fonder of his wealth, upon this account, than for all the other advantages it procures him.” — Adam Smith, Theory of Moral Sentiments (1759)

In certain obvious respects, the Trump presidency reaffirms long-hardening polarities of class warfare in the United States. Accordingly, America’s glibly Edenic myth of “equality” has continued to unravel before the relentless economic assaults of this provocative presidency. At the same time, because these grievous assaults are potentially ruinous for the rich as well as the poor—especially when they take their current form of irrational trade wars—the net effect could include a more generally injurious leavening of American well-being.

In other words, the disjointed Trump tariff policies and policy correlates will be “egalitarian” in the sum total of their inflicted harms, but this egalitarianism will also mean that rich and poor must somehow “share” in the inevitable suffering.

For both scholars and policymakers, such an evident irony should bring to mind Adam Smith and his Inquiry into the Nature and Causes of the Wealth of Nations. Long ago, Smith had already understood the manifestly complex nuances of international trade, and was quick to point out that trade policy outcomes were often unexpected and markedly counterintuitive. Published in 1776, “the Wealth of Nations” was indeed a revolutionary book; yet, quite conspicuously and purposefully, it did not expressly favor the monetary or social interests of any one particular economic/social class over another.

For the most part, Adam Smith sought an optimal market of goods and services that would suitably promote the wealth of all competing classes, simultaneously.

Understandably, what he did not seek, above all, was a system of production and exchange that could quickly become corrosive and deleterious “across the board.” In this connection, he had expressly highlighted the numerous prospective errors of any baseless protectionist strategies, most notably any unilateral imposition of tariffs that could plausibly be reciprocated. Famously, in such classical assessments, Smith had identified an “invisible hand,” in essence, a foreseeable “convergence of satisfactions” whereby the unstoppable compulsions of individual self-interest and the equally insistent needs of entire nations could somehow be reconciled.

But what might this seemingly quaint eighteenth-century stance have to do with our present and increasingly uncertain American economic moment? To begin a proper answer, the commendably seamless arguments of Adam Smith remain a reflexive mainstay of modern political conservatives. Never a plutocrat, Smith reasoned persuasively that various arrangements of private wealth maximization could still permit the poor to live tolerably. Rejecting his contemporary Jean Jacques Rousseau’s very contrary position—that is, that “the privileged few . . . gorge themselves with superfluities, while the starving multitude are in want of the bare necessities of life”—he foresaw in capitalism not just an enviably rising productivity, but also the indispensable foundations for ensuing political liberty.

Later, of course, Karl Marx offered a distinctly alternate view. Marx, for his part, had seen in these virtually identical and allegedly harmonious dynamics of economic competition a veritable font of personal and collective self-destruction. Moreover, it was, for him, a deeply regrettable and execrable font.

There is more. In his own time, Adam Smith was undaunted by any determinedly specious political arguments that were grievously detached from intellect. By applying various capitalistic modes of production and exchange, he had reasoned, an inextinguishable social inequality might still be cheerfully reconciled with certain measurable increments of human progress. In those troubling cases where the prevailing facts could have taken him in different directions, we may presently assume, he would have felt compelled to make aptly reciprocal modifications of his core theories.

Most assuredly, among Donald Trump’s most senior economic advisors, there is no Adam Smith. Indeed, enchanted by conceptual simplifications, which always appeal to “the base,” self-declared supporters of Adam Smith wittingly ignore the admirable depth and complexity of his conceptual thought. For example, they disregard that Smith’s presumed system of “perfect liberty” can never be consistent with robust encouragements of an endlessly needless consumption.

Adam Smith had understood what Trump trade policies disregard: certain inexorable laws of the marketplace, driven by a natural competition, always demand principled disdain for vanity-driven consumption.

Adam Smith could never have abided “conspicuous consumption,” a phrase that would later be used more popularly and more effectively by sociologist Thorsten Veblen. This particular species of consumption, driven in the final analysis by variously recalcitrant cravings related to individual self-worth, could never expect to become a rational engine for economic or social improvement. Today, this still crucial point should resonate instructively with all who would heap gratuitous praise upon a White House that blatantly equates personal success with the conspicuous envy of mostly anonymous others.

In any event, under no imaginable circumstances could Adam Smith have championed a system of consumption premised on the notion that material acquisition ought to stem originally from the prior wish to impress other people.

Significantly, although Adam Smith already understood both the psychological and economic dynamics of “conspicuous consumption,” he also loathed and feared such dynamics. For him, it was reasonable that the market should routinely regulate the price and quantity of available goods according to the unchanging and “natural” arbiters of public demand. This market, he urged accordingly, must never be manipulated from above, by governments, especially by way of deceptively foolish policies that must create indeterminate tariffs and potentially cascading trade wars.

Under President Donald Trump, America is rapidly losing sight of Adam Smith’s “natural liberty.” In vain, this president still attempts to construct a viable economic policy upon overflowing oceans of shallow slogans and empty witticisms. Arguably, our correlative or derivative problems of orchestrated trade barriers and manipulated hyper-consumption are not primarily economic. Rather, Smith would have warned, spurred on by ineradicable personal doubts of self-worth and self-esteem, these problems should be examined as fundamentally psychological in origin.

Ironically, while the Trump administration remains committed to policies that are ritually oriented toward “buying more,” the tangible effects of its needlessly combative trade policies will have a decidedly opposite set of outcomes. It follows that these tariff-centered policies, supporting retrograde attitudes toward “conspicuous consumption” and price inflation at the same time, must represent the absolute worst of all currently possible policy options.

Whether Democrats or Republicans, all Americans already believe, more or less directly, that their national economic efforts must somehow be oriented toward status-based purchasing. Oddly enough, however, disregarding Adam Smith, almost no one seeks to inquire: “What sort of society can we ultimately expect from such an economic system that is based upon feverish social imitation and absolutely endless conformance?”

Writing in the middle of the nineteenth century, the American Transcendentalist philosopher, Ralph Waldo Emerson, had remarked presciently on “self-reliance.” Any foolish “reliance upon property,” Emerson warned, is the predictable result of a "want of self-reliance." What suitable corrective was needed? Emerson had answered succinctly, and without discernible hesitation: "High thinking and plain living."

Nonetheless, the relentlessly conformist call of American mass society still remains loud, crass and seemingly persuasive, especially under the aegis of a president making systematic war upon intellect, education and all serious elements of learning.

In his Theory of Moral Sentiments (1759), Adam Smith first noted that human beings are not made happier by their possessions, but that the rich, in seeking the “gratification of their own vain and insatiable desires,” may still advance the “interest of society.” With remarkable originality, Smith had explained, the wealthiest members of the nation, without ever consciously intending such generalized benefit, “are led by an invisible hand” to bring forth necessary reductions in social inequality. But today, in 2018, where exactly shall we seek these manifestly desirable “reductions?”

Back in the eighteenth century, Adam Smith would likely have shuddered with any foreknowledge of the Trump presidency, not only because he would have been unsympathetic to the supporters of any plainly injurious plutocracy, but also because he already recognized the implacable consequences of an economic theory based intentionally upon delusion. As long as our American economy remains animated, at its core, by both conspicuous consumption and more generally destructive trade wars, an accelerating class warfare will be our tell-tale narrative.

Significantly, however, the results will weigh heavily upon both rich and poor.

The apparent beauty of Smith’s “self-regulating” market, a dynamic flow of goods and services that is its own very efficient guardian, will crumble inelegantly before the multiple contrived wants of “ruthless profiteers.” In such a self-poisoning economy and society, one sustained by the Trump White House, agonized convulsions, sometimes overlapping and intersecting, would play cruel havoc with Adam Smith’s “invisible hand.” Then, in Trump’s ever-despairing universe of expanding trade wars and growing class warfare, America’s rich and poor would suffer together.

In essence, this is the only “democracy” we can ever expect from a president who acts in misguided opposition to Adam Smith.

Louis Rene Beres was educated at Princeton (Ph.D., 1971), and is Emeritus Professor of International Law at Purdue University. The author of twelve books and several hundred scholarly articles/monographs on world affairs, his essays appear often in many major American and European newspapers and magazines, including Yale Global Online; The New York Times; The Atlantic; The Hudson Review; The Bulletin of the Atomic Scientists; The Hill; US News & World Report; The National Interest; JURIST; Oxford University Press Blog; Harvard National Security Journal; Israel Defense; and The Daily Princetonian. Professor Beres was born in Zürich, Switzerland, on August 31, 1945.