11. Trade and Commerce 1918-1967

Question 1

What impact did World War 1 have on Britain’s economy?

Answer 1

Debt
- Britain no longer in a position to invest significantly in its colonies
- A lot of Britain’s overseas investment had been wiped out
- The war had cost Britain about £35b (13x the cost of the Boer War)
- Britain had borrowed $4b from the USA
- Enormously expensive war caused the countries reserves to run dangerously low
- The pound had to be removed from the gold standard
- Huge rise in domestic borrowing in Britain - gov debt rose from £700m in 1914 to £7.5b in 1919

Markets and Industrial competition
- Production for the war had been prioritised - competitors able to win over markets (e.g. Japanese textile production) so they lost revenue from exports
- The global economy which had been built on free trade was disrupted by war
- The returns from oversea investment earn them a total of £600m compared to £369m in 1913

Growing costs of Empire
- Britain’s industry had been damaged - the income gained from this was used to run and defend the Empire
- Growing nationalism had made the empire harder to police and control - cost a lot
- Some colonies relied on Britain too much to pay for their needs during a time where Britain was suffering itself
- Some colonies felt they no longer needed Britain

Benefits of victory
- Extension of formal control in the Middle East gave Britain access to oil which was a valuable commodity - it was also used to fuel the merchant fleet
- Germany had been shattered by defeat - it had once been one of Britain’s main economic rivals - Britain free to have its dominant position in the world

Question 2

What impact did the war have on India’s economy?

Answer 2

• India contributed about £146m to the war effort
• India became less dependent on Britain - 2/3 of Indian imports from Britain in 1914 - this fell because of the wars disruption of trade and the growing strength of foreign competition
• Indian manufacturers captured more of the domestic market
• Britain placed high taxes on Indian imports after the war which gave Indian industry protection against competition leading to growth
• The tax burden per head of the population rose by 65% between 1914 to 1915 and 1918 to 1919

Question 3

What impact did the war have on Canada’s economy?

Answer 3

• It emerged from the war as an industrial power - British manufacturers lost their influence
• Canada increasingly looked to the USA for investment and markets
• It had the most industrialised economy of any empire country
• Sent the largest amount of dominion manpower and supplied a large fraction of the munitions - 1/4 and 1/3 of Britain’s artillery ammunition was produced in Canada
• Britain borrowed $1b from Canada during the war

Question 4

What impact did the war have on Australia and New Zealand’s economy?

Answer 4

• They both relied heavily upon the British market and were hit hard by the disruption of trade

Question 5

To what extent did the economic effects of WW1 damage the British Empire? (damaged)

Answer 5

• Britain came out of the war in huge amounts of debt - reducing investment
• Britain lost overseas markets in its empire which allowed the colonies to become more independent
• Growing opposition meant that the empire was more costly to control and Britain struggled to pay to maintain order
• Less informal empire with loss of investment

Question 6

To what extent did the economic effects of WW1 damage the British Empire? (did not damage/strengthened)

Answer 6

• Britain gained access to oil in the Middle East
• Britain’s economic rivals e.g. Germany were shattered economically
• Britain managed to maintain most of its overseas trade
• New territories in Africa gave access to raw materials

Question 7

How did Britain’s attitude towards imperial trade change with the onset of the Great Depression in 1929?

Answer 7

• In the 1920s Britain had tried recreate the pre-war system in which the empire had no special preference
• Britain returned to the Gold Standard in 1925 in order to stabilise its international trade
• The Colonial Development Act 1929 was an exception to this
• Much greater emphasis placed on the importance of empire (in terms of trade) in the aftermath of the Great Depression
• Imports from the Empire increased - exports were not as successful
• Britain was forced to abandon the gold standard in 1931 but trade with the Empire in sterling proved a great asset

Question 8

What was the Ottawa Conference?

Answer 8

• Meeting of representatives from the British white dominions held in Ottawa, Canada in 1932
• The conference was called to discuss issues related to the economic policy - particularly the issue or tariffs and trade

Question 9

What was the outcome of the Ottawa Conference?

Answer 9

• The conference resulted in the signing of the Ottawa Agreement, which established a system or preferential tariffs among the British white dominions
• The system was designed to promote economic cooperation among the dominions and to encourage trade with each other rather than with other countries
• British introduced a general 10% tax on all imports - exempting Crown colonies
• Britain and the Dominions gave each other’s exports preferential treatment in their own markets
• Reinforced the important role of the Empire in supplying foodstuffs and raw materials to Britain
• Important step towards the creation of a more integrated British Empire
• Helped to establish the economic cooperation among the dominions

Question 10

How important was trade with the British Empire to Britain during the 1930s? (important)

Answer 10

Exports
- Empire remained an important market for specific goods (e.g. by 1934 68% of British locomotive (railway) exports and 72% of all motor vehicle exports were to the Empire)
- British exports to the Dominions particularly increased (26% of British exports by 1938 compared to 18% in 1909)
- Australia and New Zealand were particularly dependent on British exports of manufactured goods

Imports
- India remained an important supplier of tea and jute imports (99% of imports of jute and 89% of imports of tea came from the empire in 1934)
- Britain’s dependence on the Empire for foodstuffs increased (e.g. 63% of all wheat Britain imported came from the empire by 1934)
- By 1938, 41% of British imports came from the Empire (this had been 27% before WW1)
- Due to the Great Depression, imports of Australian wheat and dairy products were much cheaper

Question 11

How important was trade with the British Empire to Britain during the 1930s? (less important)

Answer 11

Exports
- Exports of cotton textiles to the Empire fell in the inter-war period - largely due to competition from Japan and the emerging textile industry in India
- Overall, fewer goods were being exported to the Empire (1913: £195m, 1934: £166m)
- Fewer goods were being exported particularly to India and Burma

Imports
- Imports from India decreased slightly in this period - however not very significant

Question 12

Did the Empire help during economic problems in the 1930s? (helped)

Answer 12

• The empire was an important supplier of raw materials and foodstuffs
• Importing food from Australia and New Zealand was especially cheap after the Great Depression
• It secured markets for British goods in a shrinking world market and helped secure them against competitors
• It helped to secure the value of the pound as countries joined the Sterling Area

Question 13

Did the Empire help during economic problems in the 1930s? (did not help)

Answer 13

• Some areas of the empire were hostile to Britain because they thought they were being exploited
• Protected trade with the empire meant that trade with other nations was reduced and British businesses became less competitive
• It did not protect the cotton textiles industry from Japanese competition

Question 14

Why was the British economy so badly affected by WW2?

Answer 14

• The British economy had been geared entirely to the war
• The economy had been far weaker in 1939 than in 1914
• Major defeats in the West and Far West in the first three years of war proved cripplingly expensive
• German U boat attacks were devastating - Britain lost 11.7m tons of shipping and 54% of the country’s merchant fleet strength in the beginning of the war
• The loss of major colonies in SE Asia from 1942 disrupted trade and cut off supplies of vital raw materials such as rubber from Malaya
• Less was produced for exports because of the diversion of production to weaponry
• Britain promoted home production and food rationing to reduce imports but the balance of trade was still heavily in deficit during the war
• 1/3 of overseas assets were sold
• Britain borrowed from the USA from 1941 (Lend Lease - the US supplied Britain with weapons, food and other necessities) which created heavy debts
• Britain increased dependence on Empire for imports - large investment to increase supply of foodstuffs and raw materials
• Colonial reserves held in Britain were used to pay for the war effort

Question 15

How was Britain’s economic situation made worse after the Second World War?

Answer 15

• The USA ended the Lend-Lease in late 1945 - largest because it was not prepared to support a revived British economy financially
• John Maynard Keynes negotiated a massive US loan (approx. £900m) in 1945 - created more debt
• The pound had to be made freely convertible to dollars by the Spring of 1947 - meant the British economy was not as strong as it had been
• Free convertibility would require the Bank of England would have to be able to exchange sterling for dollars at a fixed rate
• The US dollar loan was supposed to enable Britain to build sufficient reserves by 1947 - however Britain almost ran out of its dollar reserves within 6 weeks - had to suspend free convertibility
• These factors led to the Sterling Crisis of Spring of 1947 - this revealed how weak the British economy had become

Question 16

What was the Sterling Crisis of spring 1947?

Answer 16

• Major economic crisis that occurred in Britain in the aftermath of WW2
• It was triggered by a combination of factors - a balance of payments deficit, a shortage of foreign currency reserves, a decline in Britain’s industrial productivity
• These factors led to a sharp decline in the value of the British pound - put pressure on the government to take action and stabilise the currency
• Marked the beginning of a period of economic decline and restructuring that lasted for several decades

Question 17

What action did the British government take after the Sterling Crisis of 1947? What impact did this have?

Answer 17

• The government introduced a series of measures - including cuts to government spending and the introduction of import controls
• These measures helped stabilise the currency
• HOWEVER these measures also had a significant impact on the British economy - high levels of unemployment and a decline in living standards for many people

Question 18

What dual approach did Britain adopt after WW2?

Answer 18

• The cost of re-establishing its world power threatened to exceed the potential economic or political benefits
• Britain adopted a dual approach where:
  1. If the costs of controlling a colony massively outweighed its actual or potential value, imperial control was abandoned
  2. If the colonies were regarded as an economic benefit to Britain, a new emphasis was placed on colonial economic development e.g. the rubber and tin industry in Malaya received heavy government investment as they hoped it would earn large amounts of foreign currency and benefit Britain’s international trading position

Question 19

What were the Colonial Development and Welfare Acts of 1940 and 1945?

Answer 19

• They formed the foundation for the new approach

The Colonial Development and Welfare Act of 1940:
- Wrote off some colonial debts
- Provided colonial grants or loans of up to £5m per year

The Colonial Development and Welfare Act of 1945:
- Increased the aid available to colonies to £120m over 10 years
- Required each colony to produce a 10 year development plan showing how they would use the funds

Question 20

How significant was the impact of WW2 in changing the British Empire? (significant)

Answer 20

• The cost of the war led Britain to have to sell its overseas assets which reduced its informal empire
• Britain was forced to prioritise the Empire’s resources and had no choice but to leave territories when they were no longer economically beneficial
• Britain had huge debts to the US and the Sterling Crisis in 1947 showed the weakness of the sterling - especially compared to the dollar
• The wearing of the pound reduced the appeal of being in the British Empire - more likely that planes would want to be free from colonial rule

Question 21

How significant was the impact of WW2 in changing the British Empire? (not that significant)

Answer 21

• Britain still relied on the Empire for imports of important raw materials
• Britain still focused on developing some of its colonies as it had tried to do in the interwar period

Question 22

What was the Colonial Development Corporation?

Answer 22

• A British government agency that was established in 1948 to promote economic development and social welfare in the colonies
• It co-ordinated major projects and develop self-sustaining agriculture, industry and trade
• Not all schemes were successful - the Tanganyika Groundnuts Scheme of 1948 was a massive failure
• Some were successful though - Malay rubber proved to be a crucial dollar earner

Question 23

What was the Marshall plan?

Answer 23

• It was US funded initiative launched in 1948 to rebuild the economies of Western Europe - they had been devastated by WW2
• Named after US Secretary of State George C Marshall, who proposed the initiative as a way to promote economic recovery and stability in Europe
• The Marshall Plan provided billions of dollars in aid of European countries - used to finance a wide range of reconstruction and development projects
• The plan was successful in helping to rebuild Europe’s economy and infrastructure
• Played a key role in promoting economic growth and stability in Europe
• Largely regarded as one of the most successful foreign aid programs in history
• Helped establish the US as a major global power

Question 24

What was the EEC?

Answer 24

• The European Economic Community (EEC) was a regional organisation established in 1957 to promote economic integration and cooperation among six Western European countries: Belgium, France, Germany, Italy, Luxembourg and the Netherlands
• Created as part of the broader process of European integration which aimed to promote economic growth and stability by eliminating trade barriers and establishing a common market for goods, services and labour
• The EEC was successful in promoting economic integration among its members

Question 25

What was Britain’s reaction to the formation of the EEC?

Answer 25

• They chose not to join in in 1957 when it was set up
• Instead they set up their own rival trading bloc - the EFTA

Question 26

Why did Britain finally apply to join the EEC in 1963 and again in 1967?

Answer 26

• The EEC flourished
• Britain was increasingly torn between a future based on a Commonwealth of global trade links and a future based on trade and economic relations with Europe

Question 27

Why was Britain rejected in both 1963 and 1967?

Answer 27

• France rejected Britain because if Britain joined it, it would bring the Commonwealth with it (imperial preference, Stirling area) meaning that countries outside Europe would also join it
• Britain still cared about the Commonwealth and weren’t prepared to abandon it for Europe

Question 28

What was the Sterling Devaluation (1967) ?

Answer 28

• The British government was forced to devalue the pound sterling by 14.3% against the US dollar
• The devaluation was caused by a combination of factors, including a large a trade deficit, a balance of payments crisis, and a run on the pound by foreign investors
• It was designed to cut Britain’s deficit by making British exports cheaper - made imports expensive
• Destroyed the old ‘Stirling Area’ by weakening international faith in the value of the Sterling - one of the main things that tied the Commonwealth together
• The devaluation was seen as a major blow to Britain’s economic prestige
• Led to a period of economic hardship and austerity in the country
• HOWEVER, the devaluation helped to promote economic growth and competitiveness by making British exports more competitive on the global market
• The Sterling Devaluation marked a turning point in the country’s economic fortunes

Question 29

How important was the Empire/Commonwealth to the post-war reconstruction of Britain? (important)

Answer 29

• Trade with the Empire and Commonwealth grew (both imports and exports)
• Helped pay for crucial imports - some colonies were a major contributor to gaining the dollar e.g. rubber exports in Malaya
• Dependence on trade to feed Britain - Britain was dependent on the colonies for some key raw materials and foodstuffs e.g. meat from NZ
• Colonial Development was key policy and Empire was an area of significant British investment - Britain still viewed the Empire as important to develop the colonies for decolonisation
• Initially Britain refused to join the EEC and was rejected due to its commitment to the Commonwealth - believed trade with the Empire and Commonwealth was more important
• Britain remained committed to its colonies despite the loss of India in 1947
• Brian was still able to benefit from trade with former colonies within the Commonwealth

Question 30

How important was the Empire/Commonwealth to the post-war reconstruction of Britain? ( declining importance)

Answer 30

• Impact of devaluation - devaluation of the £ destroyed the ‘Sterling Area’ - showed that Sterling wasn’t as strong globally including countries tied to Sterling
• Failure of trade with the Commonwealth and Empire decreased
• Colonial development projects failed - e.g. Tanganyika Groundnut Scheme (1948)
• Britain relied on the USA for financial backing - Marshall Aid ($3.3 billion dollars)
• Britain had to back down in the Suez Crisis (1956) because it wasn’t economically strong enough to oppose the USA
• Trade with Europe exceeded trade with the Commonwealth by 1947
• The cost of administrating the colonies outstripped their value to Britain