The theoretical research on environmental effects of trade is reviewed in this study. According to the theory of beneficial trade, trade facilitates commerce and technology transfer of environmental products so as to improve the environment. But the environmentalists argue that the trade promotes the unsustainable growth of production and consumption so that the trade expansion is harmful to the environment. Trade indirectly affects the environment through the production, circulation and price of products and there are externalities for the utilization of environmental resources. The externalities of environmental cost cause failures of both market and government intervention. Therefore, in order to change the growth mode of China's foreign trade, the environmental cost must be internalized. The environmental cost under internalization includes the value of environmental resources, the new value created from the investment of human labor and the value of environmental restoration. The first thing for the calculation of environmental cost is the identification of the environmental impacts.
