Despite growing competition, Britain remains the world's largest trading and merchant shipping nation. Free trade, a canon of British life for 50 years, is now under increasing political attack. Opponents favor imperial preference, a proposed system of lower duties for goods within the empire which they suggest will help tie the empire together, raise revenue, and protect British industry.
World war has a dramatic impact on Britain's trade policy. With sea lanes and vital trade routes under threat, the state seeks total control of the country's trade. Free trade, the holy grail of laissez-faire liberalism, is abandoned, and duties of up to 50 percent are imposed on luxury imports. The war's disruption results in Britain's overseas trade falling by one-third.
After the war, tariffs on trade, at home and overseas, are removed. Four years later, Stanley Baldwin, the new Conservative prime minister, pushes for the reintroduction of protectionism. It is such a key issue that it precipitates another general election. Free trade becomes a dividing line for the political parties, and the vote goes against Baldwin's plan.
In 1932 Britain's Conservative-dominated national government again forces the old debate over free trade and tariff reform. In a bid to secure raw materials and cheap food, Import Duties Bill 32 is passed, a 10 percent tariff imposed, and free trade killed off. In the same year, in Ottawa, Britain institutes imperial preference, establishing tariffs that favor Commonwealth imports.
Britain's trade deficit continues to grow as exports decline. World War II causes exports and trade to collapse. Germany's attack on the Atlantic sea lanes destroys millions of tons of shipping, devastating vital imports of food and raw materials. Britain fights to keep the routes open. In 1941 Britain and the U.S. sign the Atlantic Charter, expressing the ideal of free nondiscriminatory trade.
Britain emerges from the war stripped of two-thirds of its export trade. It has nothing to export and no way to pay for imports. America's loans require that the pound be made freely convertible. The independence of India marks a retreat from empire that forces an adjustment to new trade networks.
Britain's share of world trade falls by about 1 percent per year. By 1952 the European Coal and Steel Community is under way, but, failing to grasp its significance, Britain is uninvolved. Churchill sees the U.S. as the basis of Britain's prosperity. When the European Common Market is born in 1957, Britain again stays out, thus cut off from the astonishing growth of European production and trade.
In 1959 Britain and six other nations set up the European Free Trade Association (EFTA) to rival the Common Market. EFTA aims to help Britain's way into Europe without damaging the Commonwealth trade agreements, still a key part of the nation's trade policy. When Britain does attempt to join the renamed European Economic Community (EEC), France vetoes its entry.
In the face of the continuing balance-of-payments crisis, Prime Minister Edward Heath launches Britain's third entry bid to the EEC in 1970, hoping that European integration will stimulate recovery. Britain's admission in 1973 requires the acceptance of the higher food costs of the Common Agricultural Policy and gradual prohibition of cheap food imports from the Commonwealth.
Joining the EEC causes a major reorientation of trade flows, but despite renegotiating the terms of EEC membership in Britain's favor, membership is still a hotly debated issue within the Cabinet. A national referendum is called in 1975, causing a great split in government. The public, however, votes overwhelmingly in support of staying in.
In 1979 Margaret Thatcher argues that because of Britain's other trading interests, including those with the Commonwealth, its tariff contribution is disproportionately large, and that Britain is becoming a net contributor to the budget of the EEC. In 1984 she secures a substantial rebate from the EEC.
BSE, commonly known as "mad cow disease," leads to a ban in 1990 on beef imports from France, Austria, West Germany, and the USSR. The Maastricht Treaty in 1992 commits members of the EEC to closer political and economic integration. Following Britain's withdrawal from the Exchange Rate Mechanism (ERM) and sterling's collapse in 1992, exports start to increase, and recession starts to fade.
Trade with Europe increases, but the U.S. remains Britain's largest export market and second largest supplier. Trade remains key to the economy, with the value of imports and exports representing nearly half its GDP. Export growth produces the first balance-of-payments surplus in more than a decade. The Labor government pursues a policy of trade liberalization and plays a key role in trade talks.
The UK trade deficit reaches its highest level ever (though not as a proportion of GDP), due to the manufacturing recession and the global slowdown. Debate is keen as to whether Britain should adopt the euro. Britain's trade with the euro-zone has been declining, while euro members' trade among themselves has increased, and many in British business fear isolation and loss of markets.
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