Difference between Trade and Commerce

Difference between trade and commerce

Difference between trade and commerce

Since the dawn of time, trade and commerce have played a vital part in the development of an economy. The terms commerce and trade are often misinterpreted and used interchangeably. But they aren’t the same and have different meanings.

What is commerce?

It is commonly known that industry refers to the production aspect of business activities. It is a type of commercial operation that involves the raising, producing, processing, or manufacturing of goods. Now, while ‘industry’ is concerned with the manufacture of products, ‘commerce’ is concerned with the distribution of those goods/products to those who require them. To put it another way, commerce is primarily concerned with the distribution of products. It encompasses all of the functions required to sustain a free and uninterrupted flow of products. As a result, the term commerce encompasses both ‘trade’ and ‘auxiliaries to trade’.

What is trade?

The word “trade” refers to the act of purchasing and selling. As a result, someone who buys and sells is referred to as a trader. A trader serves as a go-between for the manufacturer and the customer. Trade can be either wholesale or retail. A wholesale trader buys in bulk from manufacturers and sells in smaller quantities to retail merchants. And a retail trader is one who buys from a wholesale trader or, in certain cases, directly from the producers and sells in smaller quantities to the final customers.

Auxiliaries to Trade

Once a product is made, it cannot reach the intended customers on its own. Aids or auxiliaries to trade are all those activities that support the smooth flow of products from manufacturing sites to consumption centres. These are categorized into five types, i.e., (i) transportation, (ii) warehousing, (iii) insurance, (iv) advertising, and (v) banking.

(i) Transportation: It is not possible to sell all of the products manufactured at or near the manufacturing sites. As a result, products must be delivered to various locations where they are demanded. Transport refers to the medium that carries men and materials from one location to another. It can be land transport (through road or rail), air transport, or water transport (through the ship).

(ii) Warehousing: In these days of mass manufacturing, storage is essential. Warehousing is necessary because commodities must be safely stored from the time they are manufactured until they are sold. Warehouses are sometimes known as go-downs.

(iii) Insurance: Products may be damaged during the manufacturing process, in transport, or in storage due to fire or theft, among other things. These hazards are something that the business merchants would like to be protected from. In this regard, insurance firms come to their rescue. They agree to pay any losses incurred as a result of such risks. To get this benefit, the businesses must purchase an insurance policy and pay a premium on a regular basis.

(iv) Advertising: Advertising is a powerful tool for marketing products. A manufacturer transmits all information about his goods to potential customers through advertisements, instilling in them a strong desire to purchase the product. Advertising can be carried in different ways such as through television, social media, hoardings at prominent places, etc.

(v) Banking: Today, we can’t imagine doing business without banks. Money is required to establish a business or to keep it running successfully and this money is dispensed through banks.

Difference between trade and commerce

From the above discussion, it is clear that while trade means buying and selling of goods in return for money, commerce is a much broader term that encompasses all the activities necessary for facilitating the interchange of goods and services in an economy. It not only includes trade but also comprises ‘auxiliaries to trade’. Apart from the transaction of purchase and sale itself, commerce deals with all the important elements that influence the exchange of products be it transporting goods to the desired location, warehousing finished products, or taking financial assistance from banks.

Commerce is the discipline of economics that assists businesses in overcoming the difficulties of delivering products and services to prospective customers. It allows products to be delivered throughout the world regardless of where they are created.

The following table will summarize the main points of difference between trade and commerce:

Distinguishing factorsTradeCommerce
DefinitionGoods or services are transferred from one person to another in exchange for cash or currency equivalents. Trade can take place between two parties or between several parties.All activities that contribute to the facilitation of the exchange of products and services from the manufacturer to the final customers are included in commerce. Banking, transportation, advertising, warehousing, and insurance are the most common activities.
ScopeIts scope is narrow.Its scope is much broader and comprises trade too.
NatureTransactional, i.e., purchase and sale in exchange for cash or cash equivalents.Social and economic, i.e., all activities that facilitate the entire process of distribution of goods, right from manufacturing sites to the ultimate consumers. In essence, commerce contributes to the growth of an economy.
FrequencyTrade is usually a one-time transaction. It may or may not happen regularly between the parties.Commerce is a routine phenomenon that occurs on a daily basis.
EmploymentDoesn’t give rise to employment opportunities since it’s a transaction between 2 or more parties.Creates employment in many sectors across the economy.
OriginationIts origin can be traced back to the barter system where people exchanged goods & services with each other without using the medium of money.Commerce has developed as a result of trade, and trade is indeed a part of commerce.

Hope the information provided above is useful to you!

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Ruchi Gandhi

The author enjoys to write informational content in the domain of company law and allied laws. She takes interest in doing thorough and analytical research on legal topics. She is a CA along with MBA (Fin) and M. Com.

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