Development of Trade and Commerce (AQA A-Level History): Revision Notes
Development of Trade and Commerce
Britain's trading position after 1919
Following the First World War, the Empire grew in importance to Britain's trading position. During the 1920s, several Conservative MPs advocated for imperial tariff protection – a system that would place tariffs on foreign imports, promote inter-imperial trade, and render the Empire economically self-sufficient, echoing Joseph Chamberlain's earlier vision. In 1926, the government established an Empire Marketing Board to promote imperial goods. Yet despite these initiatives, Britain continued to conduct the majority of its trade with countries outside the Empire, meaning that arguments for full imperial protection never gained total acceptance.
Despite the creation of the Empire Marketing Board and advocacy for imperial protection, Britain's trading patterns throughout the 1920s reveal a significant gap between imperial rhetoric and economic reality. The majority of British trade remained with non-Empire countries, demonstrating the limits of imperial economic integration during this period.
Imperial preference
The impact of the Great Depression
The Great Depression of the early 1930s fundamentally altered Britain's economic relationship with the Empire. In 1932, Britain abandoned its long-standing commitment to free trade and introduced the Import Duties Act, which imposed a 10% tariff on most imports. This marked a dramatic shift in economic policy, driven by the need to protect domestic industry and stabilise the British economy during severe economic downturn.
The abandonment of free trade in 1932 represented a revolutionary change in British economic policy. For decades, Britain had championed free trade as a cornerstone of its economic philosophy. The decision to impose tariffs marked the end of an era and demonstrated how the severity of the Great Depression forced Britain to fundamentally reconsider its economic principles.
Later that year, the Imperial Economic Conference convened at Ottawa. Delegates at the conference accepted the principle of imperial preference – the practice of granting preferential trade terms between Britain and the Dominions, and between the Dominions themselves. The conference produced a series of detailed agreements establishing this preferential trading system across the Empire.
Effects of imperial preference
Imperial preference, whilst falling short of complete Empire free trade, generated measurable effects on Britain's trading patterns. Trade with the Empire/Commonwealth expanded substantially after 1932. Between 1935 and 1939, nearly 40% of Britain's imports originated from the Empire/Commonwealth, whilst 49% of its exports went to these territories. The trade agreements strengthened imperial cohesion in economic terms.
The British government orchestrated bulk purchases of particular colonial crops to support producers and ensure supply. By 1939, Britain purchased the entire cocoa crop of British West Africa, demonstrating the scale of this preferential purchasing system.
The bulk purchasing system, exemplified by Britain's acquisition of the entire West African cocoa crop, showed how imperial preference extended beyond simple tariff arrangements to encompass coordinated procurement strategies. This represented a form of economic planning that integrated colonial producers directly into British supply chains.
Downsides and limitations
Imperial preference brought disadvantages alongside its benefits. Dependence on imperial markets possibly reduced the competitiveness of British industry in global markets. British firms may have become complacent, focusing on protected imperial markets rather than competing internationally. Britain possibly overpaid for food and raw materials that could have been sourced more cheaply elsewhere.
The distribution of benefits from imperial preference raised fundamental questions about whose interests the system truly served. While Dominion farmers and colonial producers gained protected markets and stable prices, British consumers faced higher costs for imported goods. This created tension between imperial solidarity and domestic economic welfare.
The primary beneficiaries of preferential tariffs were often Dominion farmers and colonial producers rather than British consumers, who faced higher prices for imported goods. This distribution of benefits raised questions about whether imperial preference served British economic interests or merely subsidised colonial economies.
The sterling area
Abandonment of the gold standard
In 1931, the British government abandoned the gold standard – the system whereby the value of the pound remained fixed to a specific weight of gold. This decision allowed the pound to fluctuate, which created uncertainty for countries whose economic activity was closely tied to Britain.
Formation and function
All Commonwealth countries except Canada (which maintained closer economic links with the USA) formed an economic unit known as the sterling area. Within this arrangement, member currencies remained fixed in value relative to one another, creating monetary stability across much of the Empire/Commonwealth.
Britain's role as banker to the sterling area went beyond simple currency management. By holding the free reserves of member countries and providing access to London's financial markets, Britain created a system of economic interdependence that gave it significant influence over Commonwealth monetary policy. This financial architecture reinforced Britain's position at the centre of the imperial economic network.
The British government assumed the role of banker to the sterling area. It held the free reserves of other member countries, attempted to smooth fluctuations in the value of sterling, and permitted members of the group to raise loans in London – opportunities denied to non-members. These financial arrangements created a form of economic integration that bound the Commonwealth together through shared monetary policy.
Protection from depression
The sterling area arrangements provided Commonwealth countries with some protection from the worldwide depression. By stabilising currencies and providing access to London's financial markets, the system helped member countries weather the economic storm more effectively than many independent nations. The coordinated monetary policy reduced the risk of competitive devaluations and currency crises within the Commonwealth.
Key Points to Remember:
- Post-1919, the Empire became increasingly important to Britain's trading position, though Britain still traded primarily with non-Empire countries throughout the 1920s.
- The Great Depression prompted the Import Duties Act (1932) and the Ottawa Conference, which established imperial preference – preferential trade terms between Britain and the Dominions.
- By 1935-39, nearly 40% of Britain's imports came from the Empire/Commonwealth and 49% of exports went there, showing the impact of imperial preference.
- Imperial preference had downsides: it possibly reduced British industrial competitiveness globally, Britain may have overpaid for goods, and Dominion farmers benefited more than British consumers.
- The sterling area (formed after Britain abandoned the gold standard in 1931) created monetary stability across the Commonwealth, with Britain acting as banker and providing loans, helping to shelter members from the worldwide depression.