21: Trade and Commerce

Background

Britain had had to sell its overseas investments to pay for WW2 - lost income from its invisibles which used to make up the trade deficit. 1947 devaluation of the pound - made exports cheaper (encourages exports), however, it reduced investment. Tried to develop their colonies with the CDaWAs. They tried to create a welfare state which placed a fresh set of financial demands on the treasury

USA

World was dominated economically by the USA post WW2 - only nation that wasn't damaged economically by the war. Lots of nations had borrowed from the USA - came out as the world's creditors. Dollars become the main currency. The US Marshall plan of 1948-52 provided Britain with $3.3bn

Britain's payment for vital goods

In order to buy vital goods, Britain needed to earn dollars and build up foreign exchange reserves with which to pay for imports. It continued rationing at home to reduce food imports and prioritised British industrial production for the export rather than the domestic market. Tried to develop the productive/export capacities of the colonies, particularly Africa, where the relative under-development of local resources offered huge opportunities for growth

Trade with Empire/ Commonwealth

Areas like Malaya were a major contributor to the Hard Currency Pool. Until the 1960s, it provided essential imports of food and raw materials when Britain's reserves of foreign exchange were too limited to source imports from many other parts of the world

Investment in Empire/ Commonwealth

Britain invested heavily in its colonies. In 1956, approx. 58% of all overseas investments in the UK in shares and securities were in Empire companies and governments. However, from the 1960s, other parts of the world became more important to Britain

Colonial Development Corporation

Built on Colonial Development and Welfare Acts of 1940 and 1945 which were used to expand agricultural production and promote new technology in the colonies. Set up in 1948 to co-ordinate major projects and develop self-sustaining agriculture, industry and trade. Renamed Commonwealth Development Corporation in 1963. Not all schemes were successful e,g, the Tanganyika Groundnuts Scheme of 1948 was an abject failure. However, Malay rubber proved a crucial dollar earner

Europe

European economy recovered from the war much more quickly and impressively than might have been expected, partially because of support from the US and the climate of liberal democracy which favoured private enterprise. There had been advances in science and technology. By the mid-50s there was full employment throughout Europe, growth rates were high and living standards were rising rapidly so Europe became a favourable trading partner by 1960

Britain's reaction to EEC

It chose not to join it in 1957 when it was set up. Instead, they set up their own rival trading bloc of European non-EEC members - the European Free Trade Association - EFTA. Britain was uninterested in the EEC in 1957 thinking trade with the Empire and Commonwealth was more important. EEC flourished and Britain was increasingly torn between a future based on a Commonwealth of global trade links and on a future based on trade and economic relations with Europe

Application to join

Exports to Europe outstripped those to the Empire in the early 1960s. Britain applied to join the EEC in 1963 and 1967. France rejected Britain application to the EEC because when Britain joined it would bring the Commonwealth with it (imperial preference, Stirling Area) meaning that countries outside of Europe (with their cheap goods) would also join. Britain still cared about the Commonwealth and weren't prepared to abandon it for Europe

Stirling Devaluation 1967

Harold Wilson announced that it was lowering the exchange rate so the pound became worth $2.40, down from $2.80 - just over 14% cut. The decision was taken reluctantly, in the face of a balance of payment crisis. It was designed to cut Britain's deficit by making British exports cheaper (but it made imports dearer). The further devaluation in 1967 shows that the strategies to strengthen the colonies failed. Destroyed the old 'Stirling Area' by weakening international faith in the value of sterling and hit at Britain's global imperial pretensions -this was one of the things that tied the Commonwealth together

Trade with Empire was important to Britain's post-war reconstruction

Trade with Empire and Commonwealth grew (both in imports and exports) IMPORTS 1948: £933m => 1965: £1720m. Helped pay for crucial imports: Some colonies were a major contributor to the Hard Currency Pool ($) e.g. rubber exports in Malaya. Britain was dependant on the colonies in some key raw materials and foodstuffs e.g. meat from N.Z. Colonial Development was key policy & Empire an area for significant British investment: Britain still viewed the Empire as important develop the colonies prior to eventual decolonisation. Initially Britain refused to join the EEC & was rejected due to its commitment to the Commonwealth. Britain was still able to benefit from trade with former colonies within the Commonwealth

Trade with Empire was of declining importance to post-war reconstruction

Devaluation of the £ destroyed the 'Sterling Area' showed that Sterling wasn't as strong globally including countries tied to Sterling. Trade with the Commonwealth could not prevent devaluation and cover trade deficit. Trade with the Empire decreased as a percentage of overall trade (both in imports and exports) EXPORTS 1948: 46.19% 1965: % 27.9%. Some colonial development schemes failed e.g. Tanganyika Groundnut Scheme (1948). Britain relied on the USA for financial backing. 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 that with the Commonwealth by 1947: hence Britain applied to join the EEC (1963 & 1967). Cost of administrating colonies outstripped value to Britain

Statistics - Imports

1948 - Commonwealth: £930m, 45%; Western Europe: £430m, 21%. 1965 - Commonwealth: £1720m, 30%; Western Europe: £1760m, 31%

Statistics - Exports

1948 - Commonwealth: £760m, 46%; Western Europe: £410m; 25%. 1965 - Commonwealth: £1370m, 28%; Western Europe: £1590m, 33%