Followers of the libertarian movement claim to be the defenders of capitalism, but they do not understand how economic systems operate. Often, they promote a general understanding of “free market” while misunderstanding the traditional processes that allowed the capitalistic system to function. When President Donald Trump proposed tariffs on steel and aluminum to make their fields more equal, many of those faux capitalist launched into attacks. However, their claims couldn’t be further from what capitalism really is.

Adam Smith founded capitalism when he wrote The Wealth of Nations as a way to shift the focus from government control to consumer-based economics. In response to the government monopoly known as “mercantilism,” Smith described how a focus on consumers, not producers, would optimize markets and increase industrial efficiency. He explained that the government must take on the role of protector, establishing certain legal rules and structures that ensure fairness. Among those actions is the ability to create retaliatory tariffs, which are used to force open competing markets and ensure a level playing ground among merchants of different nations.

In Book IV, Smith discussed various aspects of international trade, and he soon turns to the notion of tariffs: “As there are two cases in which it will generally be advantageous to lay some burden upon foreign, for the encouragement of domestic industry; so there are two others in which it may sometimes be a matter of deliberation; in the one, how far it is proper to continue the free importation of certain foreign goods; and in the other, how far, or in what manner, it may be proper to restore that free importation after it has been for some time interrupted.”

Of these cases, retaliation is the most appropriate justification for restricting free trade: “The case in which it may sometimes be a matter of deliberation how far it is proper to continue the free importation of certain reign goods, is, when some foreign nation restrains by high duties or prohibitions the importation of some of our manufactures into their country. Revenge in this case naturally dictates retaliation, and that we should impose the like duties and prohibitions upon the importation of some or all of their manufactures into ours. Nations accordingly seldom fail to retaliate in this manner.”

Tariffs and other forms of importation restrictions can harm the restricted nation and create an extreme imbalance. Either trade has to come to a complete stop with the restricting nation, or retaliatory tariffs must be put in place to prevent war from starting between the two nations.

Retaliatory tariffs should only be established when there is a chance they will work to have both nations lower their restrictions: “There may be good policy in retaliations of this kind, when there is a probability that they will procure the repeal of the high duties or prohibitions complained of. The recovery of a great foreign market will generally more than compensate the transitory inconveniency of paying dearer during a short time for some sorts of goods.”

However, Smith was quick to point out the momentary nature of requiring tariffs and the inability to craft a long term policy based on them: “To judge whether such retaliations are likely to produce such an effect, does not, perhaps, belong so much to the science of a legislator, whose deliberations ought to be governed by general principles which are always the same, as to the skill of that insidious and crafty animal, vulgarly called a statesman or politician, whose councils are directed by the momentary fluctuations of affairs.”

The reason why there cannot be a long term policy regarding tariffs is that tariffs can ultimately limit manufacturing and cause greater harm if they do not open up trade with other nations: “When there is no probability that any such repeal can be procured, it seems a bad method of compensating the injury done to certain classes of our people, to do another injury ourselves, not only to those classes, but to almost all the other classes of them. When our neighbours prohibit some manufacture of ours, we generally prohibit, not only the same, for that alone would seldom affect them considerably, but some other manufacture of theirs.”

Ultimately, protectionist tariffs, ones that seek to give benefit to local workers over a competing nation, have long term negative consequences: “This may no doubt give encouragement to some particular class of workmen among ourselves, and by excluding some of their rivals, may enable them to raise their price in the home-market. Those workmen, however, who suffered by our neighbours’ prohibition will not be benefited by ours. On the contrary, they and almost all the other classes of our citizens will thereby be obliged to pay dearer than before for certain goods. Every such law, therefore, imposes a real tax upon the whole country, not in favour of that particular class of workmen who were injured by our neighbours’ prohibition, but of some other class.”

The government must give due consideration to when tariffs can open up greater trade and when tariffs are created only to prevent it: “The case in which it may sometimes be a matter of deliberation, how far, or in what manner, it is proper to restore the free importation of foreign goods, after it has been for some time interrupted, is, when particular manufactures, by means of high duties or prohibitions upon all foreign goods which can come into competition with them, have been so far extended as to employ a great multitude of hands.”

However, the removal of protectionist and retaliatory measures can cause great harm if the measures are removed too quickly: “Humanity may in this case require that the freedom of trade should be restored only by slow gradations, and with a good deal of reserve and circumspection. Were those high duties and prohibitions taken away all at once, cheaper foreign goods of the same kind might be poured so fast into the home market, as to deprive all at once many thousands of our people of their ordinary employment and means of subsistence. The disorder which this would occasion might no doubt be very considerable.”

The United States experienced these problems with the signing of NAFTA, and American manufacturers were gutted as a result. Although there was some equilibrium that came years after, the initial loss of jobs and the flooding of cheap goods destroyed permanent industrial networks in the United States, which resulted in a high loss of jobs that would not have been felt if the process was done more slowly.

Libertarian groups welcome in agreements like NAFTA and oppose tariffs, not because they believe in capitalism, but because they believe in individual profiteering. Smith’s system is based on the profit of a nation, not of an individual, and he focused on consumers as a collective. To focus on the profit of a speculator is to embrace the various oligarchy systems, including mercantilism and socialism, which give benefits to a special few at the cost of the whole nation.

Industry takes time to build, yet the removal of protections can easily undercut their ability to manufacture goods: “The undertaker of a great manufacture, who, by the home markets being suddenly laid open to the competition of foreigners, should be obliged to abandon his trade, would no doubt suffer very considerably. That part of his capital which had usually been employed in purchasing materials and in paying his workmen, might, without much difficulty, perhaps, find another employment. But that part of it which was fixed in workhouses, and in the instruments of trade, could scarce be disposed of without considerable loss.”

The problem that Smith did not realize the possibility of global manufacturing on our level or that industries could move to other nations, like China, to undercut costs and receive an unfair competitive advantage. When China devalues its currency and removes labor laws, they provide an incentive for manufacturers to move to their nation. Smith did not have to worry about such activities because of the expense of global imports and a gold based currency that prevented wide-scale currency devaluations.

However, much of Smith’s words still apply, and it is necessary to recognize a systematic imbalance that would require the use of retaliatory tariffs to ensure that China restores its currency to appropriate levels instead of falsifying trade agreements. Otherwise, further capitulation over time can only result in a complete economic destabilization and warfare.

When libertarians attack the idea of tariffs, they make their ignorance known. Tariffs are an important and effective tool in creating a system of true free trade. Instead, libertarians are just profiteers with no consideration of establishing an honest, working economic system, which Smith provided us in capitalism.

This essay was originally published as Adam Smith and Tariffs on March 17, 2016.