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The principle of comparative advantage says that, in a free market, any agent should produce more of the goods for which they have a comparative advantage. The model is usually applied to advocate for the benefits of international trade. This answer to another question has a great explanation of the theory. In the same answer, some commenters criticized the application of the principle to international trade as misleading.

I got curious about that critiques, so decided to ask a new question: what are some critiques of that model?

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One of the most common critiques is that the standard model is a static analysis. While a country might be better off today by focusing on its comparative advantage, its longer term prospects depend on the future of that industry, particularly on how quickly productivity can be improved.

For instance, in David Ricardo's original example, comparative advantage recommended that Portugal should produce wine while England produced cloth. Maybe that's okay as a static analysis, but over time the productivity of wine production improved slowly whereas for England,

exports of cotton cloth led to accumulation, mechanisation and the whole spiralling growth of the industrial revolution.

The idea that a country should temporarily distort free trade in order to establish industries in which it wants to develop a comparative advantage is often known as "dynamic comparative advantage". The East Asian economies are frequently referred to as a good example of countries using these ideas successfully. South Korea didn't start out with a comparative advantage in steel, for instance -- it created one through extensive state intervention.

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To complement the answers from Dan and Waitakere, protecionism is often justified by strategic interest. Regardless of the gains of comparative advantage, a country or region might want to retain certain industries. Usual explanations are to avoid external dependence or to retain jobs.

This kind of thinking is one of the justifications for the high levels of protection that the EU has on its agricultural industry: the losses in jobs and the risk with external dependence wouldn't be offset by the gains of lower food costs. This paper talks about it, if you want to read more.

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The answer from Dan is a good one, but I would like to add on the following criticism, which is apposite at least in the context of international trade.

Dynamic concerns notwithstanding (again see Dan for commentary on those), free trade between countries is welfare increasing for the countries trading (it must be so because under free trade voluntary autarky is always an option). However, the efficiency gains within each countries are not equally spread and so there may be winners and losers, despite an overall economic improvement.

In the US, the losers are typically those employed in manufacturing, and it is documented that as a result of trade this sector suffers significant job losses:

https://economics.mit.edu/files/9811

``Our central estimates suggest job losses from rising Chinese import competition over 1999–2011 in the range of 2.0–2.4 million."

See also, https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.9.3.57

In short, international trade is beneficial, but not to everyone.

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  • $\begingroup$ To whomever has down-voted this answer, could you let me know why? $\endgroup$ – user11305 Mar 20 '18 at 13:21
  • $\begingroup$ Generally, people will downvote because they consider the answer to be incorrect, misleading, or otherwise not useful. And asking in comments about voters' reasons is considered to be clutter, so please refrain from doing that. FWIW, as someone who hasn't voted on this answer, I'll say that one could take the view that your answer is about the politics of the distribution of benefits, rather than the economics of the benefits. Can you provide evidence that international trade must always disadvantage some part of society? $\endgroup$ – EnergyNumbers Mar 21 '18 at 7:23
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    $\begingroup$ @EnergyNumbers I would see the distribution of economic gains in a country as much an economic matter as the distribution of aggregate economic benefits. In fact, (the economist) Thomas Piketty wrote a whole book on this matter: Capital in the XXI Century. $\endgroup$ – JoaoBotelho Mar 21 '18 at 8:13
  • $\begingroup$ When international trade models are taught, it is common to show that the gains of free trade outweigh the losses, and then to wrap things up by saying "so theoretically, a transfer from winners to losers could ensure that everyone is better off". However, other branches of economics tell us how difficult and expensive this can be, and the additional distortions and inefficiencies that such transfers introduce. Also, historically, it tends not to happen, or to no more than a token extent. $\endgroup$ – Dan Mar 21 '18 at 12:15

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