Literature Study GuidesThe Wealth Of NationsVolume 2 Book 4 Chapter 4 Summary

The Wealth of Nations | Study Guide

Adam Smith

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The Wealth of Nations | Volume 2, Book 4, Chapter 4 : Of Drawbacks | Summary

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Summary

This short chapter deals with a slightly more complicated tool of economic policy: the drawback. Drawbacks are essentially a refund on import duties, paid out when an imported good is re-exported within a specific time window. The idea is to collect a higher duty on "real" imports that compete with domestic goods, while allowing international traders to store similar goods temporarily for a reduced fee. Smith finds drawbacks "the most reasonable" of the various mercantilist schemes, partly because they help to offset the harm done by import duties in the first place.

Analysis

Like most of the other policy measures discussed in Book 4, drawbacks—now often known as duty drawback—remain an important part of the trade policies of modern nations. The United States, for example, has maintained a duty drawback program since 1789, the year the U.S. Constitution went into effect. This program, which implementers describe as "creating jobs, encouraging manufacturing, [and] encouraging exports," is much more extensive than those described by Smith. It covers not only re-exported goods, but also goods destroyed after exportation and export goods manufactured from imported materials. Both of these additional features reflect the logic of drawbacks as Smith understood them, since they distinguish between goods imported to be consumed and goods imported for other purposes.

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