Comparative Disadvantage: Trade, Tariffs, and the Global South

Comparative advantage is considered a cornerstone of free trade theory, underpinning economic development strategies for countries in the Global South. However, recent shifts in global trade policy have raised questions about whether this theory still holds in practice.

David Ricardo’s theory of comparative advantage suggests that countries benefit from international trade when they specialise in the production of goods and services that they have a lower opportunity cost in. By concentrating on what is relatively cheaper for them to produce, they can export those goods and services and rely on other countries for the supply of goods and services they don’t produce (Helpman, 2011, p. 23). This underpins the idea of free trade spurred by international institutions like the World Trade Organisation (WTO), that see trade liberalisation as an engine of economic growth.

This theory has informed development strategies across the Global South, as their economy is heavily reliant on exports as a clear path to growth. By exploiting their comparative advantage and leveraging access to international markets, many developing countries have used trade as a route to economic prosperity. According to the WTO, developing countries that have traded successfully, have made the most progress in relation to alleviating poverty and improving the living standards of their local population (WTO, 2025). Access to a global consumer base is especially crucial, as their local citizens may not have the income to consume these goods domestically, so being able to rely on global markets will help to initially boost economic performance and build the foundations for a more robust economy. However, the promise of mutual gains from trade can quickly fall apart, when major economies impose trade barriers that disrupt access to global markets, making it increasingly difficult for developing countries to benefit from specialisation.

The recent wave of tariffs introduced by the Trump administration calls into question whether comparative advantage functions as a real development opportunity, when the very principles of free trade championed by major economies are so easily reversed. Global trade links are important to the US economy but even more so to smaller countries of the Global South, where global markets provide the “scale of demand that allows for expansion, specialisation, and the productivity gains that bring rapid development” (Webster & Kenny, 2025). Since 2000, many African countries benefitted from duty free access to US markets under the African Growth and Opportunity Act (AGOA) (Mathiasen & Martinez, 2025). Under Trump’s new tariff regime, they are essentially being punished for specialising – the exact behaviour encouraged by the theory of comparative advantage – despite the fact that exports to the US account for a large portion of their GDP.

One of the countries that have become most vulnerable to these changes is Lesotho. Lesotho is known as the “denim capital of Africa”, responsible for the production of jeans for popular American brands such as Levi’s (Rukanga, 2025). Thanks to AGOA, it has a well-established apparel industry that is driven by exports primarily to the US (Kao, 2016). Due to access to global markets, they are able to specialise in their area of comparative advantage, which has become a core part of its economy, enhancing productivity growth and employment opportunities. The shock tariff implemented to Lesotho of 50% is particularly severe because specialisation (in line with Ricardo’s theory) means that the country has a less diversified economy and now have few alternatives. While the tariffs’ impact on the US’ current trade deficit is near negligible, the impact on Lesotho, as well as other countries in the Global South, is significant.

Since the announcement of the new tariff regime, Trump has introduced a 90-day pause, with a 10% blanket tariff remaining for all. Though this seems like an attempt to ease tensions, this short-term suspension adds to the current uncertainty, as specialisation has now become a risk when trade policy from major powers is this chaotic. The 10% tariff still marks a sharp increase from the 0% duty free status previously granted from AGOA. Why would countries build long-term development strategies around comparative advantage theory, which assumes stable access to markets, when the actual conditions are anything but? Some economists might argue that these disruptions are temporary political phenomena rather than fundamental flaws in comparative advantage, however, for countries making long-term development decisions, even temporary instability poses significant risks to their economy. This political back and forth undermines the very premise of utilising comparative advantage - maybe it isn’t an advantage at all.

The ongoing shifts in global trade policy and the introduction of these tariffs demonstrates how the global economy is moving further away from the economic integration that cultivates comparative advantage. Given the unpredictability of the current context, following this theory would most likely do more harm than good for countries in the Global South. Perhaps comparative advantage is no longer the “silver bullet” that Ricardo once claimed it to be, and may no longer provide a reliable pathway to economic growth and development.

References

Helpman, E. (2011). Understanding Global Trade. Cambridge: Harvard University Press. Available at: https://doi.org/10.2307/j.ctt24hhh9.

Kao, M. (2016). Lesotho’s participation in apparel value chains: An opportunity for sustainable development? Available at: https://www.tralac.org/news/article/10878-lesotho-s-participation-inapparel-value-chains-an-opportunity-for-sustainable-development.html.

Mathiasen, K. & Martinez, N. (2025). The New US Tariff Regime Is Another Blow for Africa. Available at: https://www.cgdev.org/blog/newus-tariff-regime-another-blow-africa.

Rukanga, B. (2025). Nine things about Lesotho – the country ‘nobody has ever heard of’. Available at: https://www.bbc.co.uk/news/articles/czdnv6gpezjo.

Webster, B. & Kenny, C. (2025). The New US Tariff Regime Will Have Its Greatest Impact in Developing Countries. Available at: https://www.cgdev.org/blog/new-us-tariff-regime-will-have-its-greatestimpact-developing-countries.

World Trade Organisation. (2025). Building Trade Capacity. Available at: https://www.wto.org/english/tratop_e/devel_e/build_tr_capa_e.htm.