What Is Domestic Trade?

Domestic trade refers to the exchange of goods or services within an individual country or territory. In this type of trade scenario, the market is constrained by the borders of that country, so that all products must be bought and sold by people living within the domestic market. Domestic trade is the opposite of international trade, where goods are sold freely between different countries. Both domestic and international trade play an important role in the modern economy, both at the local and global levels.

Throughout early history, people were limited to domestic trade due to a lack of access to international markets. As transportation improved, many countries turned from a purely domestic market to an international one, which introduced new products into the region. Examples of this include the Silk Road, as well as early voyages to seek out spices, salt and gold. Today, a simple domestic market is likely to be found only in small villages or underdeveloped nations. Most larger countries rely on a mix of domestic and international trade to grow the economy and maximize product selection.

For businesses, domestic trade offers a number of advantages over international trade. Transaction costs associated with making sales tend to be much lower for domestic markets due to a lack of tariffs and customs duties. Transportation costs are also much lower, and goods can be put on the market more quickly because they have a shorter distance to travel.

Domestic trade also provides benefits to society as a whole. Buying local goods helps to keep money within a country, where it contributes to long- and short-term growth. It also encourages investment and development within the country, and eliminates the country's dependence on foreign lands. This means that political issues or wars will have less of an effect on the economy than they otherwise would. For example, countries with few manufacturing plants are likely to struggle during wartime, as they will have difficulty obtaining equipment and weapons from a country they may be feuding with.

The biggest drawback associated with domestic trade is a limit to the selection of products available for sale. In a pure domestic trade market, countries that do not have supplies of certain resources will not be able to enjoy those resources. For example, people in northern nations like Canada would be unable to enjoy food grown in tropical regions without the presence of international trade markets. The same is true for countries that may lack the equipment or technical know-how required to make specific products.

A lack of international trade also results in a limited market size for businesses. Once a company has saturated the domestic market for a product, they may have no way to increase sales in the future if international trade is prohibited. A policy allowing only domestic trade also leads to a lack of globalization, which results in limited knowledge about other people and cultures.