Adam Smith Warned About Nearly Every Flaw in Today’s U.S. Trade Policy

On Tuesday I had the honor of delivering the 2026 Lev Dobriansky Distinguished Lecture in Political Economy at George Mason University. In recognition of the 250th anniversary of both the United States Declaration of Independence and Adam Smith’s groundbreaking treatise, The Wealth of Nations, the hosts invited me to discuss Smith’s enduring impact on American public policy, particularly in the realms of trade and protectionism. Today’s column presents an essay version of that address.

This year also marks two and a half centuries since the birth of a cornerstone for America’s remarkable free-market system: Adam Smith’s The Wealth of Nations. Though widely regarded as a foundational economics volume, addressing ideas such as the “invisible hand,” comparative advantage, the gains from specialization, the hazards of mercantilism, and the balance of trade, its insights extend beyond pure theory. Indeed, as I reviewed the work in preparation for my talk, I kept noticing that The Wealth of Nations is also a profoundly political work, offering practical lessons about how commercial policy is actually shaped—lessons that have resonated through modern public-choice theory and across generations of U.S. trade politics.

Three passages from the book crystallize some of Smith’s most striking political ideas—showing him not simply as an 18th‑century economist but as a sharp political thinker who could be describing Washington today just as well as Scotland 250 years ago.

The opening quotation likely stands as Smith’s best-known remark about politics and policy, though it is often misread. In Book I of The Wealth of Nations, he wrote:

The often-overlooked second portion of this remark clarifies that, contrary to many modern claims, Smith isn’t advocating for government antitrust police to dissolve private business meetings. Rather, he is making a political‑economy point: because industry tends to protect itself at the expense of consumers (through higher prices), public policy shouldn’t foster or encourage such assemblies.

Yet this is precisely what U.S. trade policy has done—and has done for centuries.

In the early days of the republic, when the powers of government were comparatively modest, tariffs served as the primary mechanism for both revenue collection and distributing rents to the industries that organized and lobbied for them. The Tariff of Abominations (1828) drew influence from Northern textile and iron producers. The decades after the Civil War witnessed a golden era of tariff rent-seeking, with the iron, steel, wool, and sugar sectors effectively drafting U.S. tariff schedules. As I’ve chronicled at Cato and as Dartmouth economic historian Douglas Irwin details in his notable work Clashing Over Commerce, 19th‑century tariff lobbying laid the groundwork for the broader lobbying and interest-group system that endures today. And it began with trade policy openly auctioned to the highest bidder.

Offer the rents, and the rents will be sought.

The apex of 20th‑century tariff cronyism in Congress is the notorious Smoot-Hawley Tariff Act of 1930. As economic historian Phillip Magness has shown, tariff-loving Republicans invited industry lobbyists to push for even higher import protections, and the lobbyists swarmed Congress: “Special interests flooded committee rooms, exchanging cash behind the scenes for favorable rates to shield themselves from foreign competition amid the unfolding economic downturn.” Almost everyone secured their own tariff line, and average tariff rates on taxable imports neared 50 percent, triggering a retaliatory spiral that deepened the Great Depression.

The Reciprocal Trade Agreements Act of 1934 (RTAA) represented Congress’s institutional move to curb its own power by delegating trade talks and tariff authority to the executive branch. It was a reform Adam Smith would likely applaud: the objective was to reduce corporate rent-seeking within Congress by removing tariff-setting from legislators and by persuading exporters to balance protectionist interests abroad with ongoing openness to imports.

The reform worked for a time. Legislated tariff rates fell, and the era of explicit tariff corruption waned. Yet America’s protectionist lobbying apparatus did not vanish; it adapted to the new forms of protectionism the government made available. In the 1960s it gained a powerful judicial shield: the Noerr-Pennington doctrine. Rooted in Supreme Court rulings, it held that joint corporate lobbying for policy—even when anti-competitive (price‑hiking) aims—constituted protected First Amendment activity and thus escaped antitrust liability. The doctrine can be defended on First Amendment grounds (and, if you think about it, Smith’s notion of liberty and justice), but it effectively blessed a corporate “conspiracy against the publick”—as long as the conspiracy happened in Washington rather than a boardroom.

Today’s expansive trade-lobbying complex is both vast and potent. As Clark Packard and Alfredo Carrillo Obregon of Cato explained in a recent paper, “Big Steel”—through the American Iron and Steel Institute, labor unions, and certain industry‑funded think tanks—likely secured more protective measures than any other American sector. Far from satisfying its demands, every tariff, subsidy, or mandate seems to fuel even more requests for protection. Over the past decade, former steel executives and lawyers have occupied numerous senior government positions.

Then there’s “Big Sugar,” a textbook legal cartel sustained by price supports and quotas. Everyone in Washington knows the U.S. sugar program is a costly fiasco, yet sugar cane and beet growers form a tight coalition in swing states and align with corn growers who profit from high-fructose corn syrup. As former House Speaker John Boehner memorably observed in his memoir, lawmakers quickly learn that sugar policy is terrible, but they also learn not to “mess with” Big Sugar.

These coalitions aren’t alone. Big Dairy has actively lobbied for tariff-rate quotas and marketing orders that fence in the domestic market, contributing to the 2022 infant formula crisis. Big Ship—a coalition of unions, shippers, and shipbuilders—has blocked meaningful reform of the Jones Act for more than a century, even as U.S. shipbuilding costs remain far above global prices and U.S. refineries rely on crude imports from Saudi Arabia and Nigeria rather than domestic sources. Nearly any product protected by special import barriers today—textiles, shrimp, catfish, tomatoes, aluminum, lumber, kitchen cabinets, and so on—has an organized group pressing for the same kinds of protection Smith described in 1776.

And far from concealing their “conspiracy against the publick,” these organizations proudly display it:

The second quotation continues the thread of corporate influence, while also considering how the public reacts. It is drawn from Book I:

Here, Smith implicitly raises the problem of “rational ignorance”: voters and consumers lack incentives to study the complexities of intricate trade legislation because the personal cost of a single policy is small, while the cost of becoming informed is high. Insiders in the industry, however, know every clause of every law and actively work to embed protectionism into laws that no one has time to read. Elected officials—keen on reelection rather than the “public interest”—are thus apt to craft measures that favor insiders while neglecting the broader public. This is precisely why robust public skepticism and scrutiny are essential—an attitude that politicians and their allies often try to dodge.

History is replete with examples illustrating Smith’s concern. Smoot-Hawley’s thousands of tariff lines were shaped largely in committees with industry input and little floor debate. Many of today’s tariff peaks—on clothing, footwear, and more—trace back to Smoot-Hawley, surviving decades of trade-policy reforms without direct notice or revision. Congress has repeatedly amended “trade remedy” rules and Buy American provisions to shield Big Steel and other industry groups. The Jones Act lobby has repeatedly narrowed the exemptions that would allow waivers. The Byrd Amendment— quietly tucked into a broad appropriation bill in 2000—mandated that antidumping duties be paid directly to the petitioning companies (a protectionism plus subsidy!). And I won’t even begin on farm legislation and biofuels policy.

As the quote suggests, this is the exact type of protectionism that tends to be forced into must-pass bills that no one reads. Yet even Adam Smith could not have fully anticipated today’s scale of the problem. He pictured protectionism as requiring a visible legislative act: a British merchant seeking protection would petition Parliament directly. And that’s largely how things operated in the United States before World War II, with interest groups lobbying Congress.

Today the scene has shifted, with the RTAA pushing most routine protectionism to the executive branch and a permanent bureaucracy that can impose, modify, and sustain import barriers through regulatory action, executive orders, emergency declarations, and agency guidance—often without a single floor vote in Congress. Dozens of trade-remedy measures (primarily antidumping and countervailing duties) are set by the Commerce Department and the International Trade Commission. Section 232 “national security” tariffs flow through Commerce. Section 301 restrictions move through the Office of the U.S. Trade Representative. The Department of Agriculture manages tariff-rate quotas and marketing orders. The Maritime Administration oversees maritime protectionism, while Customs and Border Protection handles tariff classification and enforcement. 

Each framework, and others like it, provides industry groups with a murky, labyrinthine path to persuade an agency for new protections from foreign competition—and to “capture” that agency through repeated interactions. Outsiders who aren’t in the know don’t stand a chance.

The agencies themselves, meanwhile, are frequently predisposed to cater to the very companies they regulate. USTR’s Industry Trade Advisory Committee system (ITACs) formally embeds industry representatives in U.S. trade negotiations. Steel and aluminum producers maintain dedicated liaisons within Commerce’s Import Administration. Textile firms maintain their own office at USTR. USDA runs special offices for dairy and other foods, managing price supports, marketing orders, supply controls, and import quotas. And if Congress is involved at all, it’s typically through one of the industry caucuses—the Steel Caucus, the Textile Caucus, and the like—working to push these laws even further toward protectionism.

President Donald Trump, of course, intensified this dynamic, rolling out a long list of new tariffs under various authorities—some routine, some novel—and centralizing tariff decisions within the White House through a more opaque and discretionary framework. By January 2026, over half of all U.S. imports faced at least one special tariff measure set without congressional input. Unsurprisingly, trade lobbying surged as firms sought exemptions and new restrictions on foreign competition—precisely as Smith would have predicted:

Smith urged the public to give tariffs and other commercial regulations what he called their “most suspicious attention”—and for very good reasons. Today, however, the administrative state and U.S. trade law render such scrutiny exceedingly difficult, if not impossible.

The third and final quotation reveals Smith’s most somber—and most prescient—view. This appears in Book IV:

Far from depicting Smith as a naïve ideologue, this passage shows he understood the deep structural hurdles to free trade—from both the public mood and, more crucially, from organized industry. The latter’s resistance is a classic public-choice illustration: the concentrated benefits of protectionism are clear to insiders, while the costs are spread thinly across many people, making reform hard to mobilize. Companies, workers, communities, suppliers, and political agents all accumulate gains from tariffs—higher asset values, wages, and political leverage—so they stand to lose a great deal if protection is removed (the so-called “transitional gains trap”).

Meanwhile, the gains from trade liberalization—lower prices, more efficient resource allocation, dynamic growth, and broader prosperity—are real and, when viewed in total, far larger than what protectionist groups secure. Yet these improvements are subtler, less visible, and less organized, so they often go unacted upon.

This dynamic makes it extraordinarily hard to reverse protectionist policies, even when they’re acknowledged as costly and ineffective. The United States’ record confirms this trend: we still levy tariffs approaching 50 percent on inexpensive footwear despite clear harm to consumers (especially among poorer and larger households), and our protectionist stance has yielded a weak domestic industry while inflating input costs for downstream manufacturers. The Jones Act has overseen a slow erosion of U.S. shipbuilding and the merchant fleet, yet reform remains elusive due to industry defenses. Even after it became evident that tariff and non-tariff barriers contributed to the 2022 baby-formula crisis, those barriers snapped back into place once attention waned—largely due to the efforts of Big Dairy. Finally, studies repeatedly show that protectionism imposes sizable costs on consumers while failing to sustain thriving domestic industries, yet it survives in multiple forms because beneficiaries fight to preserve it while the broader public remains mostly unaware. Regrettably, this political economy will also complicate attempts to reform Trump’s new tariff regime. Even with robust economic arguments and unfavorable public opinion, change will likely be uphill.

Adam Smith blended pragmatism with a cautious outlook on politics and real-world trade policy. Yet he also spent substantial effort outlining why free trade and free markets are worth defending, and his political observations hint at ways advocates can wage that defense.

First, there is an ongoing imperative for education and openness. Generating the public’s “most suspicious attention” toward protectionism requires shedding light on its hidden costs. Free-market organizations do this daily. For instance, at Cato we recently launched a Jones Act waiver tracker to illustrate the commerce created by President Trump’s waivers (to the dismay of Big Ship). The aim is to help people recognize the policy’s real harms, grow more skeptical of its proposed benefits, and perhaps back future efforts to reform it. More transparency of this kind is essential.

But sunshine alone isn’t sufficient. The durable way to halt lobbying efforts seeking rents from protectionist actions is to stop offering such rents so freely. That requires new institutional checks on how tariffs and other protectionist measures are applied—legal provisions that make clear that U.S. trade policy isn’t up for grabs. Laws must be amended to include automatic sunset clauses, mandatory cost-benefit analyses, meaningful procedural safeguards, robust publication duties, and genuine judicial review of executive‑branch trade actions (instead of near-total deference). As public-choice pioneer James Buchanan might remind us, the solution isn’t merely better politicians or better arguments; it’s better rules.

Implementing this kind of comprehensive reform is challenging, but it is the kind of change two and a half centuries of political economy demand.

German soccer fan Freddy is visiting the United States for the World Cup and is live‑tweeting about his daily adventures—and his astonishment at America’s abundance (including Buc-ee’s). 

U.S. tariff revenue turned negative last month:

Savings from shale-gas consumers:

Small firms are bearing a heavy burden from tariffs: