Why 'Father of Economics' Adam Smith will be spinning in his grave as Donald Trump assumes office

Donald Trump’s fondness for tariffs could plunge the world into damaging trade wars that make everyone poorer

“As Adam Smith observed, trade without tariffs makes people richer. The more trade, the more wealth. Tariffs impoverish everyone. They are a bad idea.” Dr Madsen Pirie, president of the Adam Smith Institute, neatly summed up the views of the Kirkcaldy-born ‘Father of Economics’ on tariffs in an article following Donald Trump’s election victory.

In the unlikely event that Smith was childish enough to have a least-favourite word, it might well have been ‘tariffs’. Unfortunately for the world, the soon-to-be leader of the world’s biggest economy has declared it to be his favourite and he appears determined to start throwing them up in defiance of well-established economic wisdom.

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It seems Donald Trump reckons the world should give 18th-century ‘mercantilism’ – characterised by protectionist policies, trade wars and real ones – another go. As an aside, the Encyclopaedia Britannica notes that this was “the economic counterpart of political absolutism”.

The famous 18th-century Scottish economist Adam Smith would not be a fan of Donald Trump's theories about tariffs (Picture: Fine Art Images)The famous 18th-century Scottish economist Adam Smith would not be a fan of Donald Trump's theories about tariffs (Picture: Fine Art Images)
The famous 18th-century Scottish economist Adam Smith would not be a fan of Donald Trump's theories about tariffs (Picture: Fine Art Images) | Heritage Images/Getty Images

A risk to global economy

In its latest World Economic Outlook, the International Monetary Fund warns that the risks to the global economy include “an intensification of protectionist policies... in the form of a new wave of tariffs” which could “exacerbate trade tensions, lower investment, reduce market efficiency, distort trade flows, and... disrupt supply chains”.

It also said that while tax cuts and other measures in the US could “boost economic activity in the near term”, with positive benefits for growth worldwide, “in the longer run, this may require a larger fiscal policy adjustment that could become disruptive to markets and the economy, by potentially weakening the role of US Treasuries as the global safe asset...”

Of course, Trump is a self-proclaimed genius. No doubt, he will think that the IMF and other economists across the mainstream political spectrum have no idea what they are talking about.

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Others, however, offer a very different assessment of Trump’s intellect. For example, Rex Tillerson, the former chief executive of oil giant ExxonMobil who briefly served as Trump’s Secretary of State, reportedly described his boss as a “moron”.

According to some accounts, this remark was preceded by an earthy expletive. If full-blown Trumponomics really kicks in, expect to hear many more, and not just from the ghost of Adam Smith.

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