| Why and when should nations trade? this two -part question has intrigued economists for centuries. Adam Smith theorized hi 1776 that national real income could be maximized if a country specialized in its export sector and import ed only these goods that others could make for less. We called it "the theory of absolute advantage ".which was challenged in 1817 by David Ricardo and his theory of comparative advantage, in which revealed the base and the source of mutually beneficial trade. The most important refinement of the Ricardian model was developed by Eli. Hechscher and Bertil.Ohlin, who created "Factor Endowments " theory. Comparative Theory and Factor Theory had been the foundation of international trade theory into 1980s.The first significant challenge to the traditional theory was "Leontief Paradox ". And then ,after the World War II, many new situations appeared in world market, which the traditional theory could not give satisfied explanation, including Tech-products trade; intra-industry trade; trade between similar countries; scale economy; imperfect competitive market. So, by the end of 1980s, relatively few scholars accepted the theory of factor proportions and comparative advantage as an adequate explanation of the observed patterns of trade. To provide a new explanation, two very different types of research were undertaken. One developed on the bases of traditional theory, including Theory of Preference Similarity, The Technologic Gap Theory, Product Cycle Theory, and New Trade Theory. Despite a growing number of empirical studies, their native limitation plague the field. In contrast to the trade theorists research, Michael Porter chose an inductive approach and build a complex framework for analyzing the competitiveness of nations. Porter focused on the issue of why some nations' firms succeed in international competition. We called his theory as "the theory of nation 's competitive advantage ".Porter's theory was designed to answer three questions: first, why does a nation succeed internationally in a particular industry? Second, what is the influence of the nation on competitive in specific industries and industrial segment ? Finally, why do a nation's firms select particular strategies ?The essence of porter's argument was that attributes of a nation shaped the environment faced by domestic firms in ways that promoted or impeded the creation of competitive advantage. Four attribute were particularly important: factor conditions, demand conditions, the vigor of related and supporting industries, and the Industrial structure. Two other auxiliary variables were government actions and chance events .As to China's foreign trade, during the last 20 years ,our country carried out the principle of comparative advantage ,that is , exporting labor-intensive product and importing capital-intensive product. This strategy had stimulated the development of china's foreign trade to certain degree. But facing the intensive competition in the world market, we should change our strategy from comparative advantage to competitive advantage.This dissertation was divided into five parts. Part I reviews the traditional trade theory ,and introduces its latest development. The second part is mainly about porter's theory. This dissertation holds the idea that the theory of nations competitive advantage is considered to be a new framework of international trade theory ,this subject is addressed in partIII;The fourth part analysis china's present situations of international trade, and poses out that we should use Porter's theory to guide our foreign trade development ;In the last part of this dissertation, there are a few suggestions on how to obtain competitive advantage.
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