4.1.3 (HL)—Limits of comparative advantage

Comparative advantage is a model of potential gains from specialisation, not a rule that every trade agreement must follow.

The simple model assumes conditions such as low transport costs, flexible resources, good information, no major externalities and limited adjustment costs. Real economies face tariffs, power imbalances, supply risk, pollution, labour displacement and industries that may need time to develop.

Before recommending specialisation, test the model assumptions and identify who gains, who loses, how quickly resources can move, and whether a market failure changes the calculation.

Cheap imported steel may lower construction costs, but a region can lose specialised jobs and face pollution or strategic-supply risks. The static price gain is real, yet it is not the whole policy evaluation.

A lower opportunity cost does not prove that unrestricted trade is best in every period. It shows one part of the opportunity calculation; distribution, resilience and external costs may change the decision.