Differences between Internal Trade and International Trade

Characteristically, there are marked differences between internal and international trade as stated below.

1. Specific Terms:

Exports and Imports. Internal trade is the exchange of domestic output within the political boundaries of a nation, while international trade is the trade between two or more nations. Thus, unlike internal trade, the terms “export” and “import” are used in foreign trade. To export means to sell goods to a foreign country. To import goods means to buy goods from a foreign country.

2. Heterogeneous Group:

An obvious difference between home trade and foreign trade is that trade within a country is trade among the same group of people, whereas trade between countries takes place between differently cohered groups. The socio-economic environment differs greatly between nations, while it is more or less uniform within a country. Frederick List, therefore, put that: “Domestic trade is among us, international trade is between us and them.”

3. Political Differences:

International trade occurs between different political units, while domestic trade occurs within the same political unit. The government in each country is keen about the welfare of its own nationals against that of the people of other countries. Hence, in international trade policy, each government tries to see its own interest at the cost of the other country.

4. Different Rules:

National rules, laws and policies relating to trade, commerce, industry, taxation, etc. are more or less uniform within a country, but differ widely between countries.

Tariff policy, import quota system, subsidies and other controls adopted by a government interfere with the course of normal trade between it and other countries. Thus, state interference causes different problems in international trade.

5. Different Currencies:

Perhaps the principal difference between domestic and international trade is that the latter involves the use of different types of currencies and each country follows different foreign exchange policies. That is why there is the problem of exchange rates and foreign exchange. Thus, one has to study not only the factors which determine the value of each country’s monetary unit, but also the divergent practices and types of exchange resorted to.

6. Heterogeneous World Markets:

In a way, home trade has a homogeneous market. In foreign trade, however, the world markets lack homogeneity on account of differences in climate, language, preferences, habits, customs, weights and measures etc.

The behavior of international buyers in each case would, therefore, be different. For instance, Indians have right-hand drive cars, while Americans have left-hand driven cars. Hence, the markets for automobiles are effectively separated. Thus, one peculiarity of international trade is that it involves heterogeneous national markets.

7. Factor Immobility:

Another major difference between internal and international trade is the degree of immobility of factors of production like labour and capital which is generally greater between countries than within the country. Immigration laws, citizenship qualifications, etc., often restrict international mobility of labour. International capital flows are prohibited or severely limited by different governments.


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