You wrote: "By stupid I mean both immoral and dumb - like smoking near child is something common without any impact on health. Moral principles but what is more important - child health. I don't mind a lot if someone is smoking near me however I do mind a lot if someone is smoking near child or pregnant woman. My wife also doesn't like when he smoke around kid but because of close relation with mother, she doesn't want to go into any consequences to father because that would harm her as well. Once we told father-in-law that if he smoke then should change t-shirt at least so he was angry with us for a weekend and then nothing - like we didn't talk about it, like he didn't remember etc. Just continue smoking around kid or even taking kid on arms during smoking."
Based on this, I think there are a few separate things you need to do. Firstly, as I mentioned in a comment, you need to first obtain a clear consensus with your spouse on the moral principles involved in this issue and what they imply. Notice that although I asked you to confirm that your spouse also thinks it is "both immoral and dumb to smoke near a child", your answer evaded the question and phrased it in terms of consequences to her father. That is in my opinion a big issue. Before we talk about how best to deal with others, we need to be clear in ourselves what is our moral bottomline. This applies to you as well as your spouse. You both need to think carefully through what you believe is immoral. Don't reflexively respond with "But others will think/do this/that in reaction.".
Secondly, after you come to a consensus, you both need to be firm on it and not be pushovers. Being firm does not mean that you refuse to change your mind forever, but it does mean that you always go back to your core moral principles when evaluating any new ideas or courses of action. Being firm includes being able to explain clearly why you both believe it is wrong for others (e.g. your father-in-law) to do certain things to your child. Be as generic as possible (talk about smokers if it applies to all of them) without being imprecise (do not say "we don't like it" if you mean "we can't tolerate it").
Thirdly, affirm that you understand that your father-in-law feels the need to smoke frequently, and affirm that you both do not wish to keep him away from your child, but that you feel that it is your duty to protect your child (which is true as far as I can tell from what you said). Explain that because of that you have no choice but to request that he avoid smoking during your visits. If possible, get a doctor to write a letter explicitly stating that cigarette smoke is harmful to your child, and show it to him. That way, if he continues to brazenly defy the scientific consensus (e.g. smoking while holding the child), it will be in direct opposition to a medical professional.
On the other hand, depending on your moral bottomlines (which I do not know), you may choose to compromise regarding third-hand smoke. Would you and your spouse find it morally acceptable if he does not smoke around your child but may be wearing clothes contaminated with third-hand smoke? One possible reason for trying for a compromise is to increase the likelihood that he will accept it instead of forcing you to decide between two worse options (stop all visits or have child breathing in second-hand smoke) because of failure to come to agreement.
In other words, your moral considerations should take into account peace in the family, which is important for emotional stability, and weigh it against the health impact on the child, carefully. This is not easy, but you and your spouse will just have to try your best. As before, what matters is that you try your best, not whether you manage to get an optimal solution.
The scientific evidence is strong enough that there is no safe level of second-hand smoke. As the CDC says: "Even brief exposure to secondhand smoke can damage the lining of blood vessels and cause your blood platelets to become stickier. These changes can cause a deadly heart attack.". And exposure to second-hand smoke is estimated to cause disproportionately greater disease burden in children than adults.
For third-hand smoke, however, it is dificult to tell how bad it really is, as there does not seem to be sufficient studies. Of course, it is most sensible to be cautious and prevent exposure to third-hand smoke, but personally I suspect the risk from 1 hr/wk of third-hand smoke is small enough to be worth compromising over. Since I am not an expert in any related field, I emphasize that this is just my personal opinion based on my own estimates.