Changing Patterns of Trade and Finance (Depth 5)

• WW1 changed the structure of world trade. British exporters lost markets abroad due to the fighting and their industries were geared up to war production. In the early years of the war, the USA took over many of these markets and this continued into the 1920s.
• Japan also benefited from Britain's temporary withdrawal from world trade and began flooding the markets with Japanese products.
• Countries such as India developed their own iron, steel and textile industries and, in 1919, introduced tariffs against British goods even though they were still part of the British Empire.
• The structure of international finance was changed by the war. Britain's role as the centre of the financial world had been successfully challenged by the USA.
• WW1 disrupted the normal patterns of international finance. The gold standard, which prior to 1914 had been the basis of international finance, collapsed. After 1918, the world's financial markets struggled to return to normal. For some, this meant returning to the gold standard that had provided stability before the war. This was a time when exchange rates for currencies were fixed against the price of gold and therefore against each other. In April 1925, Britain went back on the gold standard. This was done at a time when the price of gold was high, which made British exports expensive.
• Throughout the 1920s, the USA was the world's most economically powerful nation. Then, in 1929, the US stock market on Wall Street collapsed. This led to a severe economic depression. Determined to retrieve the situation, the US government erected high tariff barriers in order to protect home consumption, and recalled the loans it had made to foreign governments.
• The Wall Street Crash's immediate effect was that world trade collapsed, unemployment rose sharply in all European countries and governments desperately tried to save their people from destitution.
• Britain was one of the first countries to be effected by the WSC:

  • USA = Britain's biggest trading partner - with American markets closed due to high tariff barriers, there were very limited markets where British manufacturers could sell their goods - some businesses went bankrupt, others had to lay off large amounts of their workforce
  • income from trade with the USA was the main way Britain raised money to repay WW1 debts - the government couldn't meet its debt repayments - USA also called in all loans made after WW1, expecting its debtors to repay in full immediately
• Britain was one of the first countries to be effected by the WSC:

  • Britain was owed money by most of the WW1 allies (Russia, Italy, France etc) - but in similar situation and couldn't afford to make payments
  • Situation made worse by Britain's return to the gold standard