Britannia, at least for a time, ruled the waves. At her height the Empire accounted
for one-fifth of the world's population, and covered almost a quarter of the Earth's total
land area. The lifeblood of the Empire was trade, through
trade routes stretching from Britain around the world, she imported raw resources from
her colonies: wool from Australia, butter from New Zealand, steel from Canada, tea from
India, cotton from the Americas, sugar from the Caribbean, Gold from South Africa
and so on. These resources were processed in the nation’s
factories and were in turn sold back to the Empire, who were of cause equally prolific
at trading amongst themselves. All of this trading was protected by a system
called Imperial preference: A system of preferential trade agreements, tariffs, and the sterling
area where the colonies pegged their currencies to the pound sterling. This reflected the
British policy of ‘splendid isolation’ to avoid European alliances and commitments,
as Churchill said “If Britain must choose between Europe and the open sea, she must
always choose the open sea”. But at the end of World War Two the United
Kingdom’s economy was exhausted. Her coffers were empty, she was, in a word broke, and
Britain’s mercantile Empire was trading on borrowed time.
Europe as a whole was in economic ruin. Seventy
70 percent of Europe’s Industrial capacity had been destroyed while the United States
had not been exposed to strategic bombings on her continent, and emerged producing approximately
half of the world's industrial output. The United Kingdom turned to her wartime ally
America and a delegation was sent from Westminster to Washington to ask for assistance. The British
had lost three times as many citizens as had America, and they believed that a grant would
feasible and appropriate, John Keynes as part of the British delegation even argued they
“should not be authorized to agree to anything except an out-and-out grant”! The Americans,
with fresh memories of the Great Depression were less inclined to simply hand Britain
a bailout, but the words of their negotiator, Will Clayton, illuminates the American’s
objectives: “…if you succeed in doing away with the Empire preference and opening
up the Empire to U.S. Commerce, it may well be that we can afford to pay a couple of billion
dollars for the privilege.”. In return for an American loan, on rather
favorable terms, Britain would dismantle the imperial preference system, end currency exchange
controls, and pass the Bretton Woods proposal, the precursor to the World Trade Organization.
These terms set Britain on a path away from mercantilism and towards free trade, opening
the British Empire to American goods. The following year the US started the European
Recovery Program, known as the Mashal Plan, this injected thirteen billion dollars ($130
billion in today’s money) into the economies of Western European Nations. This lifeline
wasn't just a cheque; it included American exports and so American companies profited.
Rebuilding trade partners was of great importance to the United States and this program cemented
America as trade partner of Europe.
Like the Anglo-American loan, the Mashal Plan, erased trade barriers and tariffs but it also
set up institutions to coordinate the economy across Europe. In doing this it laid the seeds
for the European Coal and Steel Community established in 1951 by Belgium, France,
West Germany, Italy, the Netherlands and Luxembourg. The idea of the founders being that with Europe’s
economies integrated, war between them would be not only undesirable, but entirely impractical.
On New Year’s day, 1973 the United Kingdom became a member of the European Economic Community,
the successor to the European Coal and Steel Community and precursor of today’s European
Union. Unlike the original members, Britain joined for economic, not political, reasons;
it was obvious that the valuable trade was with Europe.
For the United Kingdom joining the EEC meant signing up to EEC policies and that meant
an end to being able to maintain what was left of Imperial Preference. Britain was,
for example, no longer able to freely import agricultural products from its former colonies.
Imperial preferential trade agreements gave way to European protectionism. Particularly
in Australasia and New Zealand, Britain’s membership was seen as a betrayal. Australian
butter exports dropped by more than 90 per cent, and the apple trade declined by 68 percent.
These former colonies on the other side of the world began a painful process of realigning
their economies away from Britain.
Former colonies diversified their trade, including with the new powerhouse economy of the United
States . But, where Britain
and Europe stepped out of the South Pacific, China and Asia was eager to step in. China
embarked on its economic liberalization in 1978, and today China is the largest trading
partner of both New Zealand and Australia. Back in Britain, the Economy also shifted,
away from being the Industrial heart of an Empire to a service-based economy integrated
with it's European neighbors, and for the English speaking world, Britain’s membership wasn’t entirely
negative, as now the United Kingdom has become the economic gateway to Europe for its former
Empire.