Domestic market

A domestic market is a financial market. Its trades are aimed toward a single market. A domestic market is also referred to as domestic trading. In domestic trading, a firm faces only one set of competitive, economic, and market issues and essentially must deal with only one set of customers, although the company may have several segments in a market.

There are certain limitations when competing in a domestic market, many of which encourage firms to expand abroad. The main reasons why a business would decide to expand abroad is down to a limited market size and limited growth within the domestic market.

History of the early American domestic market

Many have argued that the causes of the Revolutionary War were mostly economic. There were many advantages that the colonists enjoyed, while living in British colonies. The colonists were rarely if ever asked to pay taxes, and their domestic economic activities took place without much interference from Britain. The main regulation that the British Empire really enforced was that the colonists take part in foreign trade, only as outlined by the Navigation Acts. These Navigation Acts required that goods from the colonies be shipped on boats that were owned by England, and even that some ships be routed through Britain regardless of the final destination.^[1]

When Britain refused to acknowledge the rights of their colonists, the Americans decided to boycott the use of goods that were imported from Britain. Americans were fighting for the right to elect their own representatives to be responsible for taxing them. Britain did not respond favorably to their boycott, and instead, levied new taxes and created new laws for the colonists. These were known as the Intolerable Acts of 1774. In defiance of the will of Britain, the American colonists launched a revolution that won them their independence.^[2]

After independence, the Americans struggled to implement an effective system of government that all of the states could agree was best for their new nation. During the war, under the Articles of the Confederation, Congress was given the right to declare war and conduct foreign affairs, but they were not given the ability to levy taxes or to regulate commerce. The new national government that emerged after the Revolutionary War had a host of new problems to consider. There was the issue of not having a currency, the lack of power to levy taxes, the unavailability of government revenues to pay back debts, and the barriers to domestic trade. The states were charging each other tariffs during trade. Because of these and other issues, they decided that they needed to revise the Articles of Confederation.^[1]

Leaders such as Benjamin Franklin and Thomas Jefferson were strong proponents of free trade. They believed that in order for their young nation to succeed, America needed unrestricted access to foreign markets. The only way that they were going to be able to achieve that is if they were also willing to offer reciprocal and open access to all nations. With policies like this, America would receive much-needed manufactured goods. Their goals were called into question by naysayers such as Alexander Hamilton. He was a “protectionist” , and believed that America should implement a tariffs and subsidies that protected American manufacturing . Hamilton was interested in the long-term growth of the American economy.^[3]

Hamilton’s analysis of free trade and his endorsement of protectionist policies were justified by the War of 1812. During that time, European nations violated American trade.^[4] This was followed by an upswing in nationalism. Leaders such as Henry Clay promoted a stronger base for domestic manufacturing. He called it the “American System”, and it served to put the interests of the new nation and its manufactures before others. This “American System” was the shape of the American economic policy until the Great Depression. The American policy makers realized early that free trade did not serve in the best interests of the new nation, and they created barriers to trade to protect themselves.^[3]

References

1. ^ ^{a b} Baack, Ben. "Economics of the American Revolutionary War". EH.Net Encyclopedia, edited by Robert Whaples. November 13, 2001 (updated August 5, 2010). URL http://eh.net/encyclopedia/article/baack.war.revolutionary.us
2. ^ Merrill Jensen, The Founding of a Nation: A History of the American Revolution, 1763-1776 (2008)
3. ^ ^{a b} "Opening America's Market: U.S. Foreign Trade Policy Since 1776 | Economic History Services." EH.Net | Economic History Services. Web. Feb.-Mar. 2011. [1]
4. ^ Irwin, Douglas A., and Joseph H. Davis. "Trade Disruptions and America’s Early Industrialization." National Bureau of Economic Research 9944 (2003): 1-37.