With the smuggler ID you are less likely to be harrased by corsair/outcast/hessien/LR/Hacker's and so on. If you have contraband that is not sold by there enemies.IE smuggling cardi through gamma is Baaaad.
Any ship can use the smuggler ID, but it is not in good RP to have a police/military tag. You can carry normal cargo, infact it is a must as most run's you drop off contraband, and then need to pick up a legal cargo for return trip. The biggest differance in the smuggler/trader ID is the RP. You RP the ID you have on your ship. IE most of the law will seek my smuggler out, as soon as he enter's a system.I have been spotted with contraband, but never caught:). Just RP your ID and you will have no problem's.