Trade Wars and Economic Myths — The Wealth of Nations

Smith turns to the second mercantile expedient: extraordinary restraints on imports from countries said to run a disadvantageous balance of trade. Britain heaps prohibitive duties on French cambrics, lawns, and wines, layers the impost of 1692 and 1696 until most French goods face duties near seventy-five per cent, and subjects French linens to warehousing rules that Silesia lawns escape. France retaliates in kind; fair commerce between the rivals ends and smugglers become the principal importers. Where the prior chapter sprang from private monopoly, these measures spring from national prejudice and animosity, yet Smith argues they are still unreasonable even on mercantile principles.

If French wine and linen are better and cheaper, buying them directly shrinks total import value while improving consumption. Much French goods might be re-exported at profit, as Dutch merchants now carry French products across Europe while British drinkers import clandestine French wine through Holland. What has frequently been said of the East India trade might be true of the French: though goods were bought with gold and silver, re-export of part to other countries could bring back more metal than the prime cost. If French goods paid only the same duties as other nations' with drawback on export, England might share a carrying trade now monopolized abroad. Even supposing a free trade balance favoured France, it would not follow that England was harmed or that its whole trade turned against it.

The principles which took origin from private interest and monopoly in the prior chapter here spring from national prejudice and animosity, and are, as might be expected, still more unreasonable. They are so even upon the principles of the commercial system. French goods have never been omitted in general subsidies of five per cent; counting one-third and two-third subsidies, five general subsidies preceded the present war, so seventy-five per cent was the lowest duty on most French goods, equivalent to prohibition on the greater part. Wine, brandy, salt, and vinegar faced separate heavy duties. The French, Smith believes, treated British goods just as hardly. Mutual restraints ended almost all fair commerce; smugglers became principal importers in both directions. Silesia lawns may enter on paying duties while French cambrics and lawns are warehoused for export only; higher wine duties hit France than Portugal or any other country.

By the impost of 1692 a duty of twenty-five per cent of rate or value was laid on all French goods while most other nations paid seldom more than five per cent; in 1696 a second twenty-five per cent duty was added, with twenty-five pounds per ton on French wine and fifteen on vinegar, because the first discouragement was deemed insufficient. These extraordinary restraints are the second expedient by which the commercial system proposes to increase gold and silver, after restraints on goods producible at home. Smith will show they fail even on mercantile principles before attacking the balance-of-trade doctrine itself. Part I of the chapter examines those restraints on commercial-system logic; Part II will ask whether the underlying doctrine makes sense at all.