The essay of Trump’s trade representative, Ambassador Jamieson Greer, published recently in The New York Times (link below), is quite revealing. Here comes someone to refute Adam Smith with the same mercantilistic arguments that this senior economist had to deal with in his time. The ambassador shows an impressive career; it’s understandable that he may not have had the time to read and ponder The Wealth of Nations.
It’s important to note that Ambassador Greer is a lawyer, not an economist. As a lawyer, he worked for the US steel industry. The lack of economic theory knowledge, coupled with his allegiance to former business friends, likely contributed to his biased commentary. (https://www.nytimes.com/2025/08/07/opinion/trump-trade-tariffs.html)
Throughout my life, I’ve encountered similar opinions. Whenever these ideas have been employed in government policy, the result has been a debilitation of the economy, benefiting a privileged few while hurting the majority of the population.
For instance, my grandfather worked for ECLAC, the United Nations Economic Commission for Latin America and the Caribbean. During the 1950s and 1960s, Raúl Prebisch, who led ECLAC at the time, advocated for protecting local industries with strong tariffs, sometimes even prohibiting imports of some products altogether.
The Prebisch idea of local industry protection was based on the assumption that eventually an evolution would happen and the country could compete internationally. But this never happened. Local producers had no incentive to do better; there was no competition or pressure to change things. The producers rather preferred to lobby the politicians and maintain things as they were.
The consequences of this approach in the American countries that followed suit were mediocre industrial products at high prices, for years and years. I vividly remember, as a teenager, when we all craved jeans from the USA. Our jeans in Chile were expensive, ill-fitting, and stiff, as if made of wood. Despite their higher price, they were no match for the jeans available in Miami.
Venezuela, a country that still adheres to the Prebisch ideas, aims to establish its own industry for everything and make imports extremely costly or impossible, to protect its domestic production. During my career, I led a car company that assembled US cars in Venezuela. These cars required a certain amount of local content, prompting local and foreign companies to invest in Venezuela to produce these parts. The rest of the cars arrived in boxes unassembled, and we employed 2,000 workers to put them together.
The peculiar aspect of this process is that the cars were initially produced entirely in the US assembly line before being transported to a separate warehouse where they were disassembled and packaged without the parts that should have been sourced from Venezuelan production. This was the most economical approach, but is it efficient? It resulted in significant costs, which were ultimately passed on to the Venezuelan consumer.
Look where Venezuela is now. It is a country with tremendous resources — oil, gas, metals, agriculture — but the majority of its people are extremely poor and see no perspective for them or their children, to the point that many have emigrated. Venezuelans would be much better off importing the whole cars and exporting, besides oil and its derivatives, for instance coffee and cacao, because the Venezuelan variants are considered to be among the best in the world. But their leaders and the established industry prefer to let things as they are. Coffee and cacao have high prices in the world markets. Venezuela does not take advantage of this and prefers to assemble cars, which have already been assembled before at their factory of origin, for a second time.
In Spain, where I worked when the protectionist Franco regime disappeared and the open policy of the European Union was step by step introduced, the car technology of the fifties still was the basis for the local production until the middle of the eighties, when the import prohibition was lifted. It had been good for producers. But bad for consumers.
Chile, on the other hand, underwent a profound transformation. Sadly, it was a brutal military junta that committed numerous atrocities against human rights that finally did the job. It was one of the few things it did right: to abolish the mercantilistic system, leading to the immediate cancellation of tariffs and all import impediments. Many industries failed to survive this upheaval. My father’s car manufacturing company in Arica, which produced a few hundred cars annually in a rather artisanal manner, ceased operations. Consequently, no cars were produced in Chile anymore; all vehicles became imports.
Despite this setback for some industries that had been artificially maintained, Chile emerged economically prosperous. It has since become a leading economy in South America. This transformation was catalyzed by the emergence of entrepreneurs who sought opportunities in areas where Chile possessed genuine expertise or had a competitive advantage over other nations. For instance, Chile quickly became the second producer of salmon, a fish that had previously not existed in the Southern Hemisphere.
The revenue generated from salmon exports alone was sufficient to pay for the import of all the complete cars the Chileans desired, sourced from various countries, such as Korea, the US, Japan, and Europe. The salmon-car trade had even a positive balance: Enough money was left to import huge amounts of whisky, my grandfather’s preferred beverage. He was retired when the new policy came, but the results changed his view on how countries can prosper with free trade.
An important factor in the Chilean export boom was made possible by their diplomats’ exceptional trade deals, which they reached with almost every country. These trade officers didn’t close markets; instead, they welcomed foreign products. This approach gave them leverage to secure fair conditions for the Chilean products in the foreign markets, a strong contrast to Trump and his trade negotiators’ policies, based on the believe that a big tariff stick is more effective.
Adam Smith started from a universal premise: First of all, we humans are consumers. Not the other way around, that we primarily are producers and everything has to give protection and room for profit to the producers of goods. That is nonsense. It only benefits the owners of the production facilities and, maybe, the people working for them. We produce because we have or wish to consume. And we consume cheapest and with the best quality, if we purchase from the best experts in their field, wherever they are.
Undoubtedly, there are national and security interests of a nation that are more important than a total free trade. Strategic industries should exist in a country, avoiding the trouble we all had during the Covid crisis. The defense production should also remain in the country or in the hands of trustful partners. Nevertheless, humanity would do well to remove as many trade barriers as possible. Because it is nothing else than a win/win situation.
But what the US is doing now is not an economically sound policy; it’s an aberration. It will not solve the problem of the deficit — which is mainly the deficit of a government that spends more than it gets, while at the same time reducing taxes for the ones that could afford to pay them.
Tariffs, on the other hand, are taxes consumers of imported goods pay. A significant portion of these consumers are not wealthy and will be hurt by the higher prices they will face.
Attempting to re-industrialize the USA in this manner is a misguided endeavor. It won’t succeed. While Adam Smith’s economic principles, formulated two and a half centuries ago, may be challenging for some to comprehend, they possess greater influence and power to shape reality than any presidential executive order.
