Alexander Hamilton vs Adam Smith on Tariffs and National Security: The Case for Protection vs the Case for Trade

Hamilton says a nation that cannot supply its own steel cannot defend itself. Smith says Hamilton is describing a permanent subsidy to every industry with a good lobbyist.

Why This Topic

The Supreme Court struck down Trump’s sweeping IEEPA tariffs earlier this year, but the underlying fight never went away. Section 232 tariffs on steel and aluminum are still standing. New tariffs keep getting proposed, challenged, and partially reinstated. The political argument about whether America should protect its domestic industries from foreign competition -- and whether that protection is about economics or about national security -- is as live as it has ever been.

But underneath the current headlines is a philosophical question that is genuinely old and genuinely unresolved: can a nation that depends on foreign suppliers for essential goods actually be called sovereign? And if not, what price is it worth paying to achieve self-sufficiency? Is the cost a temporary investment or a permanent tax on your own consumers?

This is not a new argument. It was not invented by the current administration or the previous one. It was fought, at extraordinary intellectual intensity, in the late eighteenth century, and the two men who fought it most clearly happen to be the two best-documented thinkers on opposite sides of the question.

Why Alexander Hamilton

Alexander Hamilton is the obvious choice for the protectionist position because he essentially invented the American version of it. His Report on Manufactures, submitted to Congress in 1791, is the foundational document of American industrial policy. In it, Hamilton argued that the United States could not remain permanently dependent on European manufacturers for finished goods, that the nation’s security and prosperity required a domestic industrial base, and that infant industries needed government support -- including tariffs -- to develop the scale and expertise necessary to eventually compete.

Hamilton was not an abstraction. He had actually governed. He had seen what it meant for a new nation to depend on foreign suppliers during a war. He had built the financial infrastructure of the United States from nothing, and his view of economic policy was shaped by that experience: markets are tools, and tools need to be managed by someone who understands what they are for.

What makes Hamilton interesting for this particular debate is that his national security argument is his genuinely strongest case -- not a rhetorical flourish but a substantive point. He was right that the United States in 1791 was strategically vulnerable in ways that pure market logic would not fix. The question is whether the remedy he proposed outlived the disease it was designed to treat.

Why Adam Smith

Adam Smith is the obvious choice for the free trade position for the same reason Hamilton is obvious for the other side: he wrote the book. The Wealth of Nations, published in 1776, remains the most thorough and most readable case for free trade ever written. Smith’s argument -- that nations prosper by specializing in what they produce most efficiently and trading for what others produce more efficiently, and that tariffs tax consumers to subsidize producers -- has not been seriously improved upon in two and a half centuries.

But Smith is also interesting here because he is not the strawman Hamilton would prefer. Smith explicitly carved out a national security exception in Wealth of Nations. He wrote that defense is more important than opulence, and that industries genuinely necessary to national defense may warrant protection even at economic cost. He was not a dogmatist. He understood that real governments operate under constraints that pure theory does not capture.

This means the debate between Hamilton and Smith is not free trade versus protectionism in the abstract. It is a much more specific and interesting argument: does Hamilton’s national security case actually qualify for Smith’s own exception? Smith would say no -- and the argument about why is the most interesting part of the debate.

Who Else We Considered

Friedrich List vs David Ricardo. List, the nineteenth-century German economist, developed the infant industry argument in far more systematic form than Hamilton, and Ricardo is probably the purest articulator of comparative advantage. This pairing would have been more technically precise and considerably less entertaining. List also died in 1846 and is not in our current roster, which settles it.

Henry Clay vs John C. Calhoun. Clay was the great champion of the American System -- tariffs, internal improvements, national bank -- and Calhoun eventually became its most bitter opponent after South Carolina’s nullification crisis. The fight between them is historically rich and personally vicious. We held this one back because the Hamilton-Smith framing gives us the philosophical foundation, and the Clay-Calhoun debate can work as a follow-up that shows what happened when Hamilton’s ideas met political reality fifty years later.

Bismarck vs Cobden. Bismarck used protective tariffs to industrialize Germany in the 1870s, and Richard Cobden was the great Victorian apostle of free trade. Strong pairing with genuinely different national contexts. Cobden is not currently in our roster and we are not ready to add him yet.

Carnegie vs Bryan. We have already used this pairing on the billionaire tax question and did not want to repeat the combination so soon, even though Carnegie’s views on industrial policy are genuinely relevant here.

Why Each Man Takes the Position He Does

Hamilton’s position flows directly from his experience as the person actually responsible for keeping the United States financially solvent and militarily viable during its earliest and most fragile years. His Report on Manufactures is not a theoretical document -- it is a policy prescription written by a man who had watched a war nearly fail for lack of domestic supply capacity. When Hamilton argues that a nation dependent on foreign manufacturers is strategically vulnerable, he is not making a hypothetical point. He watched it happen.

Hamilton also had a coherent theory of development that distinguished him from simple protectionists. He did not argue that American industries should be protected forever. He argued that they needed a developmental period -- protection during the phase when they were building scale and expertise, to be reduced as they became competitive. The tragedy of his legacy is that the developmental period never ended, because the political incentives for maintaining protection always outweighed the economic incentives for removing it.

Smith’s position flows from a lifetime of observing what he called the “mercantile system” -- the network of trade restrictions, monopoly grants, and government interventions that dominated European economic policy in the eighteenth century. In Wealth of Nations, Smith documented in exhaustive detail how these restrictions enriched merchants and manufacturers at the expense of consumers and workers, and how they consistently failed to produce the prosperity they promised. His skepticism of tariffs is not ideological -- it is empirical.

But Smith was also honest about the limits of his own framework. The national security exception he wrote is genuine, not performative. He understood that some goods -- naval stores were his example -- were important enough to defense that economic efficiency had to yield. His argument against Hamilton is not that the exception doesn’t exist. It is that Hamilton and his successors have stretched it beyond recognition to cover industries whose national security relevance is, at best, attenuated.

The most interesting tension in the debate is that both men are partly right. Hamilton is correct that strategic dependencies are real and that markets do not automatically solve them. Smith is correct that the proposed remedy -- broad protective tariffs -- consistently fails to target the actual problem and consistently benefits producers rather than the nation. The debate does not resolve cleanly because the underlying problem does not resolve cleanly.

A Note on the Sources

Hamilton’s positions are drawn primarily from the Report on Manufactures (1791) and his Report on a National Bank (1790). The Report on Manufactures is the key document -- it is where Hamilton makes his most systematic case for protective tariffs and infant industry support, and it reads as freshly as anything written about industrial policy today. Hamilton also wrote extensively in the Federalist Papers about the relationship between economic strength and national security, particularly in Federalist No. 11, where he argues that commercial power and military power are inseparable.

Smith’s positions are drawn from The Wealth of Nations (1776), particularly Books IV and V, which deal with the mercantile system and the role of government in the economy. The national security exception appears in Book IV, Chapter 2, in the discussion of the Navigation Acts -- Smith argues that the Acts were defensible because they promoted British naval power, even though they were economically harmful. His actual words are worth noting: he writes that “defense is of much more importance than opulence,” which is one of the more quotable concessions in the history of economic thought. It is also the sentence that Hamilton would most like to use against him, and that Smith would most carefully qualify.

One honest caveat: Hamilton and Smith never actually debated. They overlapped chronologically -- Wealth of Nations was published in 1776 and Hamilton read it -- but there is no record of Hamilton directly engaging with Smith’s arguments in detail. Hamilton’s Report on Manufactures implicitly responds to free trade arguments without naming Smith specifically. We have reconstructed what the debate would have looked like based on their documented positions, and we are confident the positions are accurate even if the conversation is imagined.

What Comes Next

The tariff thread is not finished. The specific question of whether tariffs bring manufacturing jobs back -- Hamilton’s developmental argument versus Smith’s efficiency argument -- deserves its own episode, and we are planning it. We are also looking at the Clay-Calhoun follow-up that shows what Hamilton’s industrial policy looked like when it met the political reality of the 1820s and 1830s.

The Iran thread continues. Military and diplomatic developments are moving fast enough that new angles keep opening up, and we have several more episodes planned.

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