Simplified Wealth of Nations by Adam Smith, Book 4, Chapter 2c: Retaliatory Restraints

Chapter 2c: Retaliatory Restraints

23 There are two cases when it will be advantageous to lay some burden on foreign industry to encourage domestic industry.
  1. 24 When an industry is needed for national defence.
  2. When a tax is imposed by foreign countries on certain products of the home country.


Case 1: National Defence

For example, Great Britain's defence depends very much on its sailors and shipping.

  1. 25 All ships, of which the owners and 3/4 of the mariners are not British, are prohibited from:
    1. trading to the British settlements and plantations
    2. being employed in the coasting trade of Great Britain
      • The penalty is the forfeiture of the ship and its cargo.
  2. 26 The most bulky commodities can only be imported into Great Britain in:
    1. the above-mentioned ships
    2. ships of the country:
      1. where those goods are produced
      2. whose owners, masters, and 3/4 of the mariners are of that country
        • When goods are imported in ships of those countries, they are subject to double aliens duty.
        • If imported in ships of any other country, the penalty is forfeiture of the ship and its goods.
          • When this act was made, the Dutch were, and still are, the great carriers of Europe.
          • By this regulation, the Dutch were entirely excluded from:
            • being the carriers to Great Britain
            • importing to us the goods of other European countries
  3. 27 The most bulky commodities are prohibited from being imported, even in British ships, from any country where they were not produced.
    1. The penalty is the forfeiture of the ship and its cargo.
      • This regulation was probably also intended against the Dutch.
      • Holland was then, as now, the great emporium for all European goods.
      • By this regulation, British ships were hindered from loading other European goods in Holland.
  4. 28 Salt fish of all kinds, whale-fins, whale-bone, oil, and blubber, not caught by British vessels nor cured on them, are subjected to double aliens duty when imported into Great Britain.
29 When the act of navigation was made, England and Holland were not at war. 30 The act of navigation is not favourable to foreign commerce or that opulence arising from it.

Case 2: When a tax is imposed by foreign countries on certain products of the home country.

In this case, it is reasonable that an equal tax should be imposed by the home country on the like produce of those foreign countries.

32 According to some, this second limitation should be extended beyond those foreign commodities which compete with our own.

33 Whether taxes on basic necessities, such as soap, salt, leather, candles, etc., raise the price of labour and all other commodities, I shall consider later in Book 5, Chapter 2.

  1. 34 It can always be precisely known how the price of a domestic commodity could be raised by such a direct tax.
  1. 35Taxes on basic necessities have the same effect on the people as poor soil and bad climate.
36 When taxes on necessities rise to a certain height, they are a curse equal to the earth's barrenness and the inclemency of the heavens. 37 There are two other cases when it may be deliberated:

Retaliatory Commerical Policies

38 It may be deliberated how proper it is to continue the free importation of certain foreign goods, when a foreign nation restrains their importation of some of our manufactures by high duties or prohibitions. 39 There may be good policy in retaliations of this kind, when there is a chance that they will repeal the high duties or prohibitions by other countries.
Words: 1877
Next: Chapter 2d: Restoring Free Trade