15: Trade, Commerce and the Economic Impact of War

Impact of WW1 on Britain: Debt

Britain couldn't invest significantly in its colonies and much of its investment overseas was wiped out. War cost Britain about £35bn which was 13x the Boer War. It borrowed $4bn from the USA. The expensive war caused reserves to run dangerously low and the pound was removed from the Gold Standard. The war meant a huge rise in domestic borrowing in Britain: gov debt rose from £700m in 1914 to £7.5 bn in 1919

: Markets and Industrial competition

Production for the war had been prioritised meaning Britain's competitors were able to win markets e.g. Japanese textile production meaning - lost revenue from exports. The war effected the banks and financial institutions which generated profit from lending money overseas. During the war the American government lent to the Entente powers and filled the gap left by the British shortfall however the economic role of American shrank swiftly after the war. In Argentina particularly, British exporters staged a strong recovery. The global economy which had been built on free trade was disrupted by war. Investments overseas continued to earn substantial income. The returns for 1920 show overseas investment earning and other invisible exports at a total of nearly £600m compared with £369m in 1913

: Growing costs

Britain's industry was damaged which the income used to run and defend the empire. Growing nationalism made the empire harder to police/control

: Benefits of victory

Extension of formal control in the Middle East gave Britain access to oil which was a valuable commodity and useful for the merchant fleet. Germany was shattered by defeat leaving Britain free to have its dominant position in the world

Impact of WW1 on: India

India contributed about £146m to the war effort. It became less dependent on Britain because of wartime disruption to trade and the growing strength of foreign competition. Indian manufactures captured more of the domestic market. Britain paced 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 1914-15 and 1918-19

: Canada

Emerged as an industrial power meaning British manufactures lost influence. Canada increasingly looked to the USA for investment/markets. Had the most industrialised economy of any empire country, sent the largest contingent of dominion manpower and supplied the large fraction off the munitions Britain needed. 1917, between ¼ and 1/3 of Britain's artillery ammunition was produced in Canada. Britain also borrowed $1bn from Canada during the war

Australia/NZ

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

General impact on colonies

The dominions (not India and SA only in part) paid for the forces they sent to the war. The impact on the colonies were bad for Britain because either they felt as though they no longer needed Britain or they relied on Britain too much to pay for their needs at a time where Britain was suffering

WW1 on Britain

Remained economic superpower with largest: foreign trade/foreign income/share of international services/ merchant fleet. But the war did bring a critical change, though it took time for the effects to become obvious'

Great Depression

In the 1920s Britain had tried to 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. Much greater emphasis was placed on the importance of the empire from British commerce in the aftermath of the Great Depression. Imports from the Empire increased but exports were not as successful. Britain was forced to abandon the gold standard in 1931 but trade with the Empire in the sterling proved a great asset

Sterling Area

Most countries of the Empire fixed value of their currencies to sterling and some kept their national reserves in sterling - reflecting the close ties to Britain. It was formalised under the Exchange Control Act of 1947. It gave access to the British market for countries in the Sterling Area, while encouraging investment by ensuring a profitable outlet for it at a time when most other international opportunities were closed down. Empire softened the impact of the collapse of the international economy in the wake of the Great Depression and defend the value of the pound after leaving the gold standard in 1931. It made British businesses less competitive.

Imperial Preference

Increasing competition from the USA, Japan and other emerging economies. As world trade shrank and other nations imposed tariffs, imperialists such as Lord Beaverbrook, the newspaper magnate (Daily Express) , argued for 'imperial preference'. This was opposed by the Dominions who wanted to protect their own growing industries

Ottawa Conference 1932

Introduced a 10% tax on all imports - exempting Crown colonies. Britain/Dominions gave each other's exports preferential treatment in their markets. Secured raw materials/cheap food for Britain and outlets for British good in a shrinking world market. Increased dependence on Empire and supressed trade with other nations

Economic Problems

Some Dominions, particularly Australia and NZ, experienced economic problems in the inter-war period. The cost of imports from Britain outstripped the income from exports. Especially after the GD because the prices of their main exports (wheat, dairy and other food) fell faster than manufactured commodities that they imported. Both countries ran up debts to Britain. Imperial preference became especially important for these countries when international trade declined sharply. Some Australians thought there were being exploited by financiers in London which led to resentment and a rising desire for independence from the Australian Labour Party. Colonies in Asia and Africa suffered as a result of the collapse of world trade. Burma and Malaya were hit especially hard as Malaya relied on exports of tin and rubber; Burma on exports of rice. African colonies also suffered from tumbling prices in the 1930s of their food and raw materials. Incomes fell brining poverty and starvation and a feeling of dissatisfaction with colonial rule

Less important: exports

Exports of cotton textiles to Empire fell in the inter-war period, largely due to competition from Japan and emerging textile industry in India. Overall, fewer goods were exported to Empire (1913: £195m 1934: £166m). Fewer good were being exporting particularly to India and Burma (8% of overseas exports by 1938, it had been 12% in 1909)

: imports

Imports from India decreased slightly in this period (from 7% of all British imports in 1929 to 6% by 1938)

Empire important: exports

44% of exports went to Empire in 1934 - 37.2% in 1914. Remained important market for specific goods (e.g. By 1934 65% of British locomotive exports and 72% of all motor vehicle exports). British exports to Dominions particularly increased (accounting for 26% of British exports by 1938 - 18% in 1909). Australia and NZ were particularly dependant on British exports of manufactured goods. By 1939, nearly 50% of British exports went to the commonwealth/empire

: imports

35% of imports came from empire in 1934 - 27% in 1914. India remained an important supplier - 99% of imports of Jute, 89% of imports of tea, came from the empire in 1934. Dependence on Empire for foodstuffs increased (e.g. 63% of imported wheat came from Empire by 1934 - 49% before WWI. By 1938, 41% of all British imports came from Empire. Due to the impact of the GD imports of Australian wheat and dairy products were much cheaper

Impact of the Second World War

British economy was geared entirely to war. It was far weaker in 1939 than in 1914. Major defeats in the first 3 years of war proved cripplingly expensive. German U boat attacks on British sea traffic were devastating. Britain lost 11.7m tons of shipping or about 54% of the country's merchant fleet strength at the beginning of the war. Loss of the major colonies in SE Asia from 1942 disrupted trade and cut off supplies of 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 Britain's overseas assets were sold. Britain increased dependence on the Empire for imports. Considerable investment by colonial governments, for example in Africa, to help increase the supply of foodstuffs and raw materials. Colonial reserves held in Britain were used to help Britain pay for the war. Destruction of houses, factories and shipping cost Britain nearly 1/4 of its wealth. In 1945, exports totalled £350m - 40% of the pre-war figure while imports reached £2 000m. Valuable markets were lost and it was likely to take Britain many years to restructure its industries for peacetime production. Britain was in £3 500m of debt, £2 500m owed to the colonies.

USA

Britain borrowed from the USA from 1941 in the form of a Lend Lease - the US supplied Britain with weapons, food and other necessities - meaning Britain emerged from the war with massive debts. Britain was dependent on the USA which ended Britain's existence as an independent great power

Aftermath of the Second World War

In late 1945, the USA ended the Lend-Lease - largely because it was not prepared to support a revived British Empire financially. John Maynard Keynes negotiated a massive US loan (approx. £900m) in 1945. The pound had to be made freely convertible to dollars by the spring of 1947 meaning that the British economy was not as strong as it had been. Free convertibility would require the Bank of England 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 to do this by 1947. However, Britain almost ran out of its dollar reserves within 6 weeks, largely due to imperial demand, and had to suspend free convertibility. This was the Sterling Crisis of spring 1947 which revealed how week the British economy had become

John M Keynes

Argued government should play an active role in managing economy to achieve full employment, higher rates of economic growth and control over inflation. Adviser to the wartime coalition/post-war Labour gov

Dual approach

The cost of re-establishing world power threatened to exceed economic/political benefits. When costs outstripped actual/potential value imperial control was abandoned e.g. India, Burma and Palestine. Where colonies were regarded as beneficial to Britain, new emphasis was placed on development. The rubber and tin industry of Malaya could command major international markets & received heavy government investment since it was hoped that it would earn large amounts of foreign currency (especially dollars) and benefit Britain's international trading position

Colonial Development

Colonial Development and Welfare Act 1940: wrote off some colonial debts and provided colonial grants or loans of up to £5m per year. 1945: increased the aid available to colonies to £120m over 10 years