Exemption is the New Privilege
Free and open trade is better for building wealth and human flourishing than privilege and protection for the select few.
“The interest of the dealers, however, in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public. To widen the market and to narrow the competition, is always the interest of the dealers.”
Book IV, Chapter II: Of Restraints upon the Importation from Foreign Countries of such Goods as can be Produced at Home, An Inquiry into the Nature and Causes of that Wealth of Nations
Adam Smith was an empiricist, and in Book IV of the Wealth of Nations, Smith’s critiques of the mercantilist system show that free and open trade is better for building wealth and human flourishing than privilege and protection for the select few. Smith understands that merchants and businesspeople will always seek privileges over their competition if they can.
President Donald Trump and his administration act contrary to Smith’s valuable economic lessons when they argue that trade deficits are a problem and that tariffs are the solution. Smith is very clear, “Nothing, however, can be more absurd than this whole doctrine of the balance of trade, upon which, not only these restraints, but almost all the other regulations of commerce, are founded.” (Wealth of Nations, IV.iii.c.2) Since taking office in his second term, Trump and his administration have increased tariffs to levels we have not seen since the 1930s and 40s. At the same time, they threaten, postpone, and change the implementation of these tariffs, which adds to uncertainty and erodes opportunities for growth.
Over the last 50 to 70 years tariff rates have come down worldwide and we have witnessed the benefits of global trade. But business and industry leaders seek protection from foreign and domestic competition by asking for political privileges . This is not new. It wasn’t new in 1776 when the Wealth of Nations was published. Robert Ekelund and Robert Tollison’s work—especially in Mercantilism as a Rent-Seeking Society (1981)—extends Adam Smith’s critique of mercantilism by examining it through a public choice lens. Like Smith, they argue that mercantilist policies arose not from the interest of the nation as a whole, but from self-interested merchants seeking monopoly privileges and rents from the monarch, showing how these interests use the political processes to “deceive and oppress the public” for private gain. For instance, steel and automobile manufacturers have been at the top of that list for a long time. They contribute money and promise votes to politicians to protect them.
The Trump administration’s April 2, 2025 “Liberation Day” announcement, imposing a 10 percent tariff on all imports, does not benefit businesses and industries. When they are all “protected” in this way, they will also all bear the higher costs and prices from tariffs. The game has changed from one of privilege seeking to exemption seeking. The government is now acting as a special interest group extracting benefits from industry leaders. Exemption is the new privilege.
A recent article by Caleb Petitt makes this exact point, noting the various industries getting exemptions. Semiconductors and microchips, smartphones, and many other products have already found exemptions from the across the board tariffs. It is not just domestic firms; foreign firms now have the incentive to seek to be exempt. Trump and those in his administration appear to be sincere mercantilists and they fail to understand the benefits of free trade. However, it also seems clear that they understand a topic I have written about before: government as a special interest group.
Trump and those in his administration claim mercantilist policies protect everyone while they are negotiating deals with business and industry leaders to extract their own privileges. Ultimately, the game is the same, business and industry leaders seek political privileges to have an advantage over their competitors. However, now the government is collecting the benefits, creating even more advantages to industry leaders that succeed in gaining privileges by exemption. Industry leaders now have to pay to trade freely, an outcome that could occur without those distortions if this administration would learn from one of the first and most lasting voices on how to create wealth for a county.
President Donald Trump and his administration act contrary to Smith’s valuable economic lessons when they argue that trade deficits are a problem and that tariffs are the solution. Smith is very clear, “Nothing, however, can be more absurd than this whole doctrine of the balance of trade, upon which, not only these restraints, but almost all the other regulations of commerce, are founded.” (Wealth of Nations, IV.iii.c.2) Since taking office in his second term, Trump and his administration have increased tariffs to levels we have not seen since the 1930s and 40s. At the same time, they threaten, postpone, and change the implementation of these tariffs, which adds to uncertainty and erodes opportunities for growth.
Over the last 50 to 70 years tariff rates have come down worldwide and we have witnessed the benefits of global trade. But business and industry leaders seek protection from foreign and domestic competition by asking for political privileges . This is not new. It wasn’t new in 1776 when the Wealth of Nations was published. Robert Ekelund and Robert Tollison’s work—especially in Mercantilism as a Rent-Seeking Society (1981)—extends Adam Smith’s critique of mercantilism by examining it through a public choice lens. Like Smith, they argue that mercantilist policies arose not from the interest of the nation as a whole, but from self-interested merchants seeking monopoly privileges and rents from the monarch, showing how these interests use the political processes to “deceive and oppress the public” for private gain. For instance, steel and automobile manufacturers have been at the top of that list for a long time. They contribute money and promise votes to politicians to protect them.
The Trump administration’s April 2, 2025 “Liberation Day” announcement, imposing a 10 percent tariff on all imports, does not benefit businesses and industries. When they are all “protected” in this way, they will also all bear the higher costs and prices from tariffs. The game has changed from one of privilege seeking to exemption seeking. The government is now acting as a special interest group extracting benefits from industry leaders. Exemption is the new privilege.
A recent article by Caleb Petitt makes this exact point, noting the various industries getting exemptions. Semiconductors and microchips, smartphones, and many other products have already found exemptions from the across the board tariffs. It is not just domestic firms; foreign firms now have the incentive to seek to be exempt. Trump and those in his administration appear to be sincere mercantilists and they fail to understand the benefits of free trade. However, it also seems clear that they understand a topic I have written about before: government as a special interest group.
Trump and those in his administration claim mercantilist policies protect everyone while they are negotiating deals with business and industry leaders to extract their own privileges. Ultimately, the game is the same, business and industry leaders seek political privileges to have an advantage over their competitors. However, now the government is collecting the benefits, creating even more advantages to industry leaders that succeed in gaining privileges by exemption. Industry leaders now have to pay to trade freely, an outcome that could occur without those distortions if this administration would learn from one of the first and most lasting voices on how to create wealth for a county.
Want more?
Caleb Petitt’s Adam Smith's Warnings about Exceptions to Free Trade
The entries on Free Trade (by Alan S. Blinder) and Protectionism (by Jagdish Bhagwati) in the Concise Encyclopedia of Economics
Douglas A. Irwin’s A Brief History of International Trade Policy at EconLib and Trade and Commerce on the Great Antidote podcast.
Free Trade, Part 2 of the An Animal That Trades video series. This eight-minute video provides an overview of Adam Smith's arguments for free international trade as opposed to the system of mercantilism—the argument underlying An Inquiry into the Nature and Causes of the Wealth of Nations.
Related podcast
Kimberly Clausing on Open and the Progressive Case for Free Trade
William Bernstein on the History of Trade
David Autor on Trade, China, and U.S. Labor Markets
Caleb Petitt’s Adam Smith's Warnings about Exceptions to Free Trade
The entries on Free Trade (by Alan S. Blinder) and Protectionism (by Jagdish Bhagwati) in the Concise Encyclopedia of Economics
Douglas A. Irwin’s A Brief History of International Trade Policy at EconLib and Trade and Commerce on the Great Antidote podcast.
Free Trade, Part 2 of the An Animal That Trades video series. This eight-minute video provides an overview of Adam Smith's arguments for free international trade as opposed to the system of mercantilism—the argument underlying An Inquiry into the Nature and Causes of the Wealth of Nations.
Related podcast
Kimberly Clausing on Open and the Progressive Case for Free Trade
William Bernstein on the History of Trade
David Autor on Trade, China, and U.S. Labor Markets