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Business Studies

Difference Between Trade and Commerce

The term ‘trade’ and ‘commerce’ are often used interchangeably with most people associating one with the other, but there is a difference between trade and commerce. Trade is a branch of commerce that is concerned mainly with the exchange of goods and services whereas commerce is broader. Commerce includes all the other related activities that facilitate trade.

What is trade and Commerce

Trade is simply the transfer of ownership of goods from one person to another in exchange for money. It can be bilateral, that is between two parties or multilateral, have multiple parties. The activities that facilitate the distribution of goods from the manufacturer, producer to the consumer make up commerce and trade is also included. Thus, commerce can be seen as all the activities that facilitate the production and exchange of goods and services. It doesn’t matter where the goods have been manufactured, with commerce they are able to reach any part of the world. The major differences between trade and commerce are outlined in the table below.

 

TRADE COMMERCE
·         The scope of trade is narrower, it is mainly concerned with the transfer of goods and services from one party to another in exchange for cash or cash equivalents. This is one of the major differences between trade and commerce ·         In comparison to commerce, the scope of commerce is wider, it encompasses the exchange of goods and services as well as all the other activities that are related to trade.·         The other supporting activities that facilitate trade are banking, insurance, advertising and warehousing among other activities. These other related activities complement trade.
·         The second difference between trade and commerce is that trade is done in order to satisfy the needs of two people, the seller and the buyer in bilateral trade, and in multilateral trade, only the parties involved benefit. ·         Commerce involves the all the parties involved in the trade plus other parties and institutions that facilitate the transaction in order to generate revenue.
·         Another difference between trade and commerce is that trade can be a one-time event that may never be repeated ·         On the other hand, commerce is ongoing where transactions can be repeated on a regular basis.
·         Trade only involves 2 or more parties and does not create employment opportunities ·         The difference between trade and commerce can be seen in employment creation.  Job opportunities are created in commerce since there are intermediaries included in the transactions.
·         The link in trade connects the buyers and sellers only. This is a major difference between trade and commerce. ·         When it comes to commerce, the link connects manufacturers, wholesalers, financial service providers and retailors among others.·         Other service providers who may not be directly concerned with trade are included in the link.
·         Some may argue that one of the differences between trade and commerce is that, with trade both the demand and supply side are known or represented. Each party is believed to know what is demanded in the market and what is supplied. ·         In commerce, it is argued that mainly the demand side of the market is known or represented. This is because the focus is on providing what the market requires through various distribution channels. However, this is debatable.
·         An interesting difference between trade and commerce is also seen in the origins of each. Trade originated from the barter system before money was used as a medium of exchange ·         Commerce on the other hand, developed as a result of trade. However, trade is now classified as part of commerce.
·         In addition to other differences, Trade alone cannot take place in different places at different times without the supporting services of commerce. This is another major difference between trade and commerce. ·         Commerce removes the place and time barrier associated with simple trade.
·         Apart from the exchange of goods and services trade may allow for credit sales but this is risky if there are no supporting activities such as banking and insurance which are provided through commerce. ·         Other supporting activities such as insurance and credit and various payment methods are provided through commerce·         Insurance protects the businesses and parties involved in trade whilst banking facilitates the payment processes
·         Trade policies resulting from protectionism such as tariffs, customs and quotas affect international trade directly. This is because such policies will target the buying and selling of goods from other countries. ·         Trade polices have an indirect effect on commerce 
·         International trade can be influenced by the geographical location of a country. For example, the highest trade is highest between geographically proximate countries. ·         Commerce on the other hand, is not necessarily influenced by the geographical location of countries.

 

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