European Business EnvironmentInternational trade can be described as the exchange of goods and services between two or more countries. International trade brings many benefits, such as low production costs, as when one country buys goods at a lower price from another country. It will reduce their production costs because they will stop or reduce the production of those particular goods. International trade serves some countries as a major source of income such as China, which depends on trade with most countries for their main source of revenue. Comparative Advantage Comparative advantage exists when a country has a lower opportunity cost than another country in producing goods, for example China can be said to have a comparative advantage over Vietnam because it produces more finished goods at a lower cost than Vietnam . The comparative advantage is positive for all countries involved. A country can gain a comparative advantage by specializing in a particular product that it is good at, such as Britain specializing in financial services, thus gaining a comparative advantage over France specializing in champagne. The principle of comparative advantage (David Ricardo, 1817) states that it is not necessary to have an absolute advantage, only a comparative advantage, it also explains that it is necessary to produce something at a lower cost in terms of other goods sacrificed to gain a comparative advantage. A country can have an absolute advantage over another country if the country can produce goods using fewer resources than another country, for example if in China a labor unit produces 90 units of wool and 30 units of wine while in France 1 unit of labor produces 20 units of wool and 70 units of wine, then China has an absolute advantage in wool while France has an absolute advantage in wineChina can benefit from exchanging wool for French wineAdvantage of international tradeThe biggest advantage of international trade is that countries that trade with each other are less likely to go to war with each otherInternational trade can help a country settle and specialize in particular goodsInternational trade improves consumer welfare by increasing choices and quality which leads to higher prices lowsDisadvantage of international tradeThe biggest disadvantage of international trade is the destruction of local industry and labor, when a country imports so much from abroad as the United Kingdom once was a leading country in the production of cars due to the dependence on the import of automobiles destroys it once a thriving local car company like Range Rover etc. produces them. When a country depends so much on trade with a particular country, it makes it vulnerable, the dependent country can easily be influenced in policies by the country they depend on