European Business EnvironmentInternational trade can be described as the exchange of goods and services between two or more countries. International trade brings many benefits, including a low cost of production, such as when one country buys goods at a lower price than another country. This will reduce their cost of production 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 its main source of income. Comparative advantage Comparative advantage exists when a country has a lower opportunity cost than another country in producing goods, for example China can claim to have a comparative advantage over Vietnam because it produces more products finished at a cheaper cost than Vietnam. Comparative advantage benefits 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, thereby achieving the comparative advantage of France specializing in champagne. The principle of comparative advantage (David Ricardo, 1817) states that one does not need to have an absolute advantage, only a comparative advantage, it further explains that one must make something at a lower cost in terms other goods sacrificed to obtain comparative advantage. A country can have an absolute advantage over another country if the country can produce goods using smaller resources than another country, such as if a unit of labor produced 90 units of wool in China and 30 units of wine while 'in France 1 unit of labor produced 20 units of wool and 70 units of wine, so China has an absolute advantage in wool while France has an absolute advantage in wine. China can benefit from the wool trade with French wineAdvantage of international tradeThe greatest advantage of international trade is that countries that trade with each other are less likely to go to war with each other.International trade can help a country establish itself and specialize on particular productsInternational trade improves consumer welfare by increasing choice and quality, which leads to lower prices. a leading country in car production, due to its dependence on importing cars, destroys it once a local car manufacturer prospers like Range Rover etc. by the country on which they depend