In what ways is foreign trade different from domestic trade?

Answer Details

Foreign (international) trade is trade between different countries, while domestic (internal or home) trade is trade within the same country. They differ in the following ways:

• Currency used: domestic trade uses one national currency; foreign trade involves different currencies, so it requires foreign exchange and exchange rates.
• Trade barriers: foreign trade faces tariffs, quotas, customs duties and other restrictions at national borders; domestic trade is generally free of such barriers.
• Distance and transport: foreign trade usually covers longer distances and greater transport and insurance costs (often by sea or air) than domestic trade.
• Documentation: foreign trade needs many documents (bill of lading, invoice, certificate of origin, import/export licences); domestic trade needs far fewer.
• Mobility of factors: labour and capital move fairly freely within a country but face immigration and legal barriers between countries.
• Risks: foreign trade carries extra risks such as exchange-rate fluctuations, political changes and longer delivery times.
• Language, laws and culture: foreign trade deals with different languages, legal systems, weights, measures and business customs; domestic trade shares a common framework.
• Government control and policy: foreign trade is more closely regulated (balance of payments, exchange control) than domestic trade.