Chapter 6 Britain in World War II

expected length of war

The coming war with Germany was expected to be long. In February 1937, the Chief of Staff Subcommittee on Planning for a War with Germany posited that such a confrontation was likely to have one of two outcomes: a quick defeat or a long war.²⁴ Either Britain would be knocked out of the war by an overwhelming bombing campaign or it would need to prepare for a long struggle before victory became a possibility. As a result of Germany’s breakneck rearmament, it was assumed that the state was vastly superior to both Britain and France in military capabilities.²⁵ Consequently, a quick victorious strike was out of the question. At the same time, Britain assumed that the German economy could not handle the stress of a long war. The best solution was for Britain to “confront [its] potential enemies with the risks of a long war which they [could not] face.”²⁶ The adopted military strategy was broken into two phases: the first required Britain to take the defensive and build up its capabilities; in the second, it would switch to the offensive operations required to win the war. The first phase would “necessarily be a long one.”²⁷ Overall, it was expected that the war would last at least three years.²⁸

assessment of the commercial situation

The first order of business in assessing the commercial position vis-à-vis the enemy was to determine the importance of German trade to Britain. In 1937, the United Kingdom imported 38.9 million pounds’ worth of goods, around 3.8 percent of their total imports, from Germany. For Germany, this represented around 8.5 percent of their total visible exports.²⁹ Britain exported 23.4 million pounds’ worth of goods, accounting for 4.5 percent of their exports for that year, to Germany. For Germany, this represented around 6.3 percent of their total visible imports.³⁰ Chief items exported to Germany were coal, cotton, wool and wool yarn, and fish and fish products.³¹ Additionally, Germany was a prominent customer of the British reexporting trade, taking in 8 million pounds of reexported goods, or around 10.6 percent of the total British reexport trade.³² An analysis of German trade with the rest of the world revealed that Germany traded directly and in considerable volume with the British Empire. The main products it imported from the empire were oilseeds, rice, wheat, cocoa, jute, cotton, wool, hides and skins, tanning materials, nickel ore, copper, manganese ore, and rubber.³³

British imports from Germany were divided into three categories: food, raw materials, and manufactured goods. The proportion of the total value of imports taken up by food products never rose above 10 percent in the 1930s. Almost all of the food products imported from Germany had an oversupply on the world markets; accordingly, Britain assumed there would be no problem losing Germany as a supplier.³⁵ Raw materials, likewise, accounted for a small amount of value of British imports and had substitutes or alternative sources of supply, requiring only temporary switching costs as a result of severed trade with Germany.³⁶

Approximately 80 percent of the imports from Germany were manufactured goods. Most problematically, in a number of cases such products were inputs required for British industry. Severing trade in these products was expected to cause considerable inconvenience and unemployment for a length of time before alternative suppliers increased their production to meet British demand.³⁷ Examples included potash, which was an important fertilizer; acetic anhydride and oxalic acid, which were used in the manufacturing of dyes; and some classes of synthetic dyes, required for the textile industry.³⁸ Some chemicals, imported from Germany in peacetime and used in the manufacture of drugs, would likewise require significant time and investment to produce domestically, and even then the price of the domestic product would be considerably higher than the German fine chemicals.³⁹

Furthermore, severing trade with Germany would pose a considerable problem for the acquisition of specialized machine tools, especially hosiery latch needles, which are essential to the textile industry.⁴⁰ In peacetime, Britain licensed the import of German machinery to the value of 750,000 pounds a year duty free, which signified the government’s acknowledgment of the difficulty of finding alternative suppliers for such specialized tools. In the highly protectionist atmosphere of the interwar years, Britain still made exceptions for German machinery, as no suitable substitutes—foreign or domestic—could be found.⁴¹ This assessment changed slightly toward the end of the decade as US suppliers started to approximate German quality. However, Britain was hesitant to increase dependence on US machine tools, as the country might not be free to export to Britain depending on how the US Neutrality Acts would be invoked in any future war.⁴²

There were several products for which Germany was the main market for British exports. Britain exported 30 percent of its fish to Germany, 24 percent of wool, 30 percent of woolen and worsted yarn, and 35 percent of cotton yarn. The British government believed that the wool industry would actually benefit from a cessation of trade with Germany but that the loss of the German market would be “a serious matter” for the fishing industry.⁴³ Most of the main products exported to Germany from Britain and the empire were commodities closely related to the war effort. It was presumed that in any war there would be an increased domestic demand for these products; thus, losing trade with Germany in this set of goods would not come with a significant loss of income.⁴⁴

The reexport trade, on the other hand, would pose a significant loss to Britain if trade was severed—not only during the war but on a permanent basis. The reexport trade consisted of states using Britain as an entrepot, storing products there so Britain could distribute them to their final destinations. Germany imported butter, tea, coffee, fur skins, rubber, raw wool, and leather by this method.⁴⁵ Britain assumed that this trade, once cut, would constitute a permanent loss: “We may assume that Germany would make every possible effort to get into touch with the original suppliers of the overseas produce which she now buys from us in large quantities.”⁴⁶ And once the original suppliers began trading with Germany directly, Britain assumed there would be little desire to resume the prewar export trade through Britain.

The ATB did not stop with an assessment of British trade with Germany; it also requested reports on German domestic production and German trade with the world. These reports tracked the necessities of German domestic consumption, the amount of this demand that could be produced in Germany, the level of stocks kept, and the principal sources of supply for major imported products. They learned that Germany was steadily increasing domestic production of food.⁴⁷ And to make itself less susceptible to economic pressure, Germany was increasing the stocks of raw materials kept in the country.⁴⁸ However, the British believed that, despite these efforts, it would be impossible for Germany to become completely self-sufficient and that areas of vulnerability would remain.⁴⁹

Germany was expected to remain dependent on imports of animal and vegetable fats, which they purchased from Newfoundland, Denmark, the Soviet Union, and France.⁵⁰ Whether Germany would have sufficient meat would be determined by fish imports from Norway.⁵¹ In terms of textiles, Britain could restrict German access to cotton and wool, as most of the German supply came from the empire; however, Britain could do little in terms of hemp, which Germany mostly imported from Italy. German stocks of liquid fuel would run out after a year of war, and it was assumed that the United States would face great difficulty in transporting more supplies to Germany.⁵² Romania would be able to fulfill German demand, but three neutral states would have to agree to allow the transport across their territory before Germany received the fuel.⁵³ To maintain its wartime armaments production, Germany required iron ore, which was primarily imported from Sweden, which could be pressured to stop such exports. Alternatively, if Germany were to take control of Lorraine, much of the need to import iron ore would dissipate.⁵⁴ Such analysis was used to determine where the greatest German vulnerabilities lay and to restrict access to those products. The commodities identified as having the greatest potential to hurt the German war effort were iron ore, nonferrous metals, liquid fuels, and foodstuffs.⁵⁵

The inability to legally limit German exports was one of the biggest challenges for the ATB, and one of the discussed solutions was to attempt to take over German export markets by providing similar British goods. However, this strategy proved impracticable: “A large part of Germany’s exports consists of highly manufactured and often of highly specialized goods, adapted with special regard for the requirements of the market in which they are intended to be sold.”⁵⁶ Indeed, the same lack of substitutes that drove Britain to continue to import German machinery affected most other German customers as well. Not only did this mean that Britain would be incapable of pushing Germany out of its export markets; it also suggested that Germany would have significant leverage over its neutral customers.

tailoring the policy for war with germany

When the EPG Subcommittee started preparing for a war with Germany in 1937, it assumed that Czechoslovakia would be neutral and that the Soviet Union would not trade much with Germany, their ideological enemy. These assumptions were proved wrong in September 1939. In the last official update of the Plan for Economic Warfare against Germany, disseminated on September 1, 1939,⁵⁷ the political situation was assumed to be a war in which Great Britain, France, Poland, and Turkey fought against Germany and Italy, while Japan stayed neutral at the outset.⁵⁸ The Soviet Union, “if not actually engaged on [Britain’s] side,” was expected to maintain neutrality.⁵⁹ The United States, Greece, and Romania were expected to be friendly neutrals, and the sympathies of Portugal, Norway, Switzerland, the Netherlands, and Belgium were likewise expected to be with the Allies. Hungary, Spain, and Yugoslavia were expected to be unfriendly neutrals, with Bulgaria sympathizing with the Central powers. This presumed arrangement of states allowed the Allies to mostly surround their enemies, creating conditions where economic pressure could inflict considerable harm to the opposite side.

Which neutrals favored which side was crucial for the final plan. The EPG Subcommittee understood that the wartime commercial policy had to match the specific war Britain expected to fight. In discussion of the German case, they expected two considerations to be particularly important: the extent to which Germany would be surrounded by states willing to sever trade with it and the expected length of the war.

On the first point, a conceptual distinction was made between a sector case and a circle case. A sector case would exist if only a portion of Germany’s frontier could be closed to trade, leaving Germany open to resupply through the unblockaded portion of the frontier. If the war veered into a sector situation, the subcommittee proposed the policy of “maximum interference with a small number of commodities.”⁶⁰ To prevent Germany from resupplying over the unblockaded border, Britain would have to pre-purchase all the products Germany wished to import. This would require a huge expenditure of foreign reserves to buy products Britain might not need at inflated war prices so as to outbid Germany. No country was rich enough to pursue such a policy with all products Germany might be willing to import. The proposed commodities to target, according to the economic assessment of German needs, were metals (particularly iron ore), fats, and petroleum. On the other hand, in a circle case, nearly the whole German border could be closed to trade. In this situation, the subcommittee believed the policy should be to “interfere with the maximum number of commodities.”⁶¹ After Germany absorbed Austria, annexed the Sudetenland, and signed the Pact of Steel with Italy, the subcommittee believed that Germany had expanded itself into a circle situation.⁶²

On the second point, the subcommittee firmly believed that “the pressure exerted would depend on the length of the war.”⁶³ If war was short, the focus of the wartime commercial policy should be on interfering in the trade of petroleum and fat. These products have very quick conversion times, and Germany was expected to face shortages in vegetable fats and edible oils soon after the war started.⁶⁴ In the event of a long war, “interference of tropical products, rubber and fruits assumed considerable importance.”⁶⁵ These products had longer conversion times to military capabilities. Rubber was included in this list, despite its high military significance, because it was known in Britain that Germany was developing a synthetic rubber to reduce its dependence on imports of the natural product.

Given the information supplied by the Chiefs of Staff, the EPG Subcommittee expected a long war against Germany. They also expected a high-stakes war. From the subcommittee’s first report, they advocated for the immediate establishment of the Ministry of Economic Warfare at the start of the war.⁶⁶ According to the general economic warfare plan, this step should only be taken in a “great” war—one that requires the power of the whole nation.⁶⁷ Every report from the EPG Subcommittee also emphasized that decisive results from economic pressure could not be expected in the short term.⁶⁸ At least a year of war would have to elapse before results could be observed. In April 1939, this estimate was expanded to fifteen to eighteen months, thanks to the continued German efforts to increase their stockpiles.⁶⁹ Because of such a time lag, “the policy should be put into operation as swiftly and vigorously as possible.”⁷⁰ The earlier trade was severed, the sooner it would start to affect the enemy.

Planning for a long, high-stakes war, the subcommittee did not see any products as innocent; the enemy would have time to convert almost all products into military capabilities to aid the war effort. The subcommittee noted, “It would be of little use to ration wheat if flour were allowed to enter freely or ores and metals if scrap and alloys were allowed free passage.”⁷¹ Since Germany would have time to convert even raw materials in lengthy supply chains into military strength before the war was over, the EPG Subcommittee developed a highly restrictive wartime commercial policy. It was assumed that “Germany [was] unlikely to attempt to import goods which [were] not either useful for the conduct of the war or at any rate conducive to the efficiency and contentment of her civil population and to the smooth working of her economic system.”⁷² Thus, the list of products for which maximum interruption of trade was sought basically included the full list of German imports.

That the policy was designed to stop all trade with Germany can be clearly seen in the exchange between R. G. Hawtrey, the Treasury representative on the EPG Subcommittee, and J. W. Nicholls, from the Foreign Office. Hawtrey inquired if the goal was to prevent Britain from exporting only contraband products or all products to Germany: “Do we not wish to prevent non-contraband goods reaching the enemy indirectly, because if they are non-contraband, he is wasting his resources on buying goods not essential to the prosecution of the war.”⁷³ In essence, Hawtrey was asking if Britain planned to recognize some goods as innocent, as safe to export to Germany indirectly, at the start of the war. The response was “If the enemy buys anything whatever, he will have some good reason for buying it; and that, to my mind, is sufficient reason for us to try and stop him.”⁷⁴ Given enough time, all products are useful to the war effort, and since Germany would have enough time, all trade had to be severed.

Even products traded with Germany in small quantities were not saved from the chopping block. Members of the subcommittee complained when the statistics they received included the word negligible under the volume of trade. The small volume of trade “[did] not provide a reason for ignoring them, since certain items, though of great importance to Germany in war, [were] only required by her in relatively small quantities.”⁷⁵

Turning their attention to implementation, the subcommittee had to find the right balance for the export prohibition list. The more products on the list, the more bona fide trade Britain gave up, losing the opportunity to generate foreign reserves crucial to resupplying the nation. Despite the high costs, the expectation of an existential struggle led to a rather extensive export prohibition list. In fact, three separate lists were drawn up. The first contained essential commodities to be prohibited immediately before the outbreak of the war. This list was publicized on August 24, 1939, in expectation of the coming declaration of war on Germany. It contained thirty-nine product descriptions, most of which were categories of items, and covered metals, textile raw materials, fats, petroleum, rubber, and resins.⁷⁶ All were products Germany was deficient in, and at the same time, they were vital for the British war effort.

The second schedule of prohibited exports contained mostly foodstuffs, raw materials, and semimanufactured goods; it was to be issued at the start of the war. This list had 294 product descriptions, most of which were categories or contained phrases such as and like material or and parts thereof. Most of these products could not be exported from Britain at all. The few products that were prohibited from export to states neighboring Germany were products that Germany was deficient in but that Britain was well supplied with—dairy products, tobacco, cotton, iron, phosphates, and pyrites.⁷⁷ Despite the general economic warfare policy’s expressed preference to keep the initial prohibition list on the shorter side, the list issued at the start of World War II was as long as the Export Prohibition List of 1918.⁷⁸

The third schedule of goods was to contain products that would be added to the existing lists once the Licensing Department was ready to take on the extra work. There were not many products left to be placed on it.

The next step was to determine the contents of the confidential contraband list, and the EPG Subcommittee advocated for an extensive one.⁷⁹ A short but exceedingly general list was published, and a separate confidential interpretation list was circulated to British officials.⁸⁰ The interpretation list had over three hundred product descriptions, containing mainly raw materials, primary products, and semimanufactured goods.⁸¹ Contraband control bases were set up at Kirkwall, Portland, Gibraltar, Haifa, and Aden to cover as much seaborne traffic to the enemy as possible.⁸²

Even with all of these measures, there was still room for indirect trade with the enemy through neutral states. As long as neutrals were available to conduct such business, Germany would be able to resupply, resisting economic pressure “for as long as she [could] pay for her imports.”⁸³ Since Britain refused to be the first to break international law to prevent German exports, the alternative was a rationing scheme.⁸⁴ The situation vis-à-vis Germany presented two complications. First, there were nineteen neutral states to contend with. For the flow of products to the enemy to be effectively limited, all neutral states had to be rationed.⁸⁵ With nineteen states to convince or coerce into participating, some members of the EPG Subcommittee expressed doubt that a rationing scheme could succeed.⁸⁶ However, instead of resolving the question, the subcommittee decided to punt it to the government at the outbreak of war and prepare a policy based on the assumption that rationing was possible.⁸⁷

The second complication was Soviet Russia: “If willing to place her resources unreservedly at Germany’s disposal, she could make good nearly all German’s deficiencies for a long time.”⁸⁸ Additionally, as a neutral state, Russia could import products from the United States over the Pacific Ocean, then export to the enemy similar products manufactured closer to the German border. Russia presented a huge gap in the blockade Britain was planning. In fact, in one of the earlier assessments of German susceptibility to economic pressure, the ATB came to the conclusion that if Russia traded with Germany, the effect of the blockade would be considerably lessened, and if the United States and Argentina also traded with Germany, which they could do through neutral Russia, there would be no point to the blockade at all.⁸⁹

Despite acknowledging these problems as major threats to the utility of the chosen wartime commercial policy, the last report issued before the war assumed away both problems. It was difficult for Britain to imagine Soviet Russia establishing close economic ties with Germany.⁹⁰ And despite the lukewarm approach to negotiations with Russia, there was hope that Russia would be a British ally in the coming war with Germany.⁹¹ As for the issue of rationing neutral states, Britain expected German behavior in the lead-up to the war to make most neutrals sympathetic to the British cause and willing to help contain Germany.

Planning for a long, existential struggle, Britain adopted a wartime commercial policy that restricted as much trade with the enemy as possible. The policy was comprehensive, severing trade in all products regardless of how irrelevant it was to the war effort, regardless of whether the product was a raw material or a finished good, and regardless of the insignificance of the value of trade in peacetime. Germany would have time to convert all of them into military capabilities in the coming war. At the outbreak of war, negotiations with neutral states started to enforce self-rationing schemes. The only “lax” point of the wartime commercial policy was the lack of control of German exports—a gap that only existed because there was no legal method of detaining German exports. Unwilling to be the first to break with the laws of neutrality, Britain set out to wait until Germany gave them an opening by breaking international law first.

expected length of war

The expected length of war, throughout the entirety of World War II, stubbornly remained long. Before the war began, the British Chiefs of Staff planned for a long war. At the outbreak of war, it was still expected to be long. When France fell and Britain found itself alone in an existential struggle against Germany, there were doubts about the possibility of winning, but for those who steadfastly believed in it, the eventual victory would be in the distant future. With the United States committing to the war effort, doubts about victory disappeared, but the references to victory as eventual did not. Through the almost six years of war, no one expected a speedy conclusion until Berlin fell.

The initial British strategy against Germany was to delay.⁹² Time was on the Allied side: British and French defense capabilities were slowly increasing, while Germany’s ability to stay on the offensive was expected to decrease because of air bombardment and economic blockades.⁹³ Eventually, Germany would be defeated through internal upheaval or through an Allied invasion, which was not expected to begin until about two years into the war.⁹⁴ Expectations of a long war were similarly reflected in other British investments into long-term policies. At the start of the war, Britain and France made a deal with Turkey to purchase all of their production until January 1943, in exchange for arms supplies.⁹⁵ The goal was to pre-purchase resources that could have otherwise ended up exported to Germany. The arrangement also provided an estimate of how long the Allies expected to need to keep supplies from reaching the enemy: from September 1939, at least, through January 1943—a bit longer than three years.

The initial strategy and the assessment of the length of war were dealt an immediate blow by the signing of the Nazi-Soviet Pact and the commercial agreement that followed it. With Soviet Russia supplying Germany with large quantities of oil and raw materials, the economic blockade developed a Russia-sized hole that the Allies could not hope to close.⁹⁶ After the fall of France in 1940, victory became “indefinitely postponed.”⁹⁷ With no ability to fight a land campaign against Germany, the Chiefs of Staff proposed and Winston Churchill accepted a strategy of organized guerrilla resistance in occupied Europe to topple Germany from within. Even under the most optimistic projections, this strategy was not expected to bear fruit until 1942, more than two and a half years after its intended launch date.⁹⁸ The German declaration of war on the Soviet Union did not usher in expectations that the British war burden would now be shared with another nation. Britain, along with most of the world, believed that the German diversion in the Soviet Union would only provide them with a few weeks of breathing room before Russia too fell to the German onslaught.⁹⁹

After the United States joined the war effort in early 1942, they proposed a buildup of forces in Britain for a cross-Channel invasion in the spring of 1943.¹⁰⁰ This plan, looking a year and a half into the future, still foresaw not victory but a shift of the war to its second offensive stage. But by the end of July, even this plan was abandoned in favor of an invasion of French North Africa. On July 29, 1942, Churchill mentioned to his colleague Clement Attlee, “It certainly will be several years before British and American land forces will be capable of beating the Germans on even terms in the open field.”¹⁰¹ The success of Operation Torch in French North Africa, in November 1942, was widely regarded as a turning point, the beginning of the offensive phase of war, which focused on reversing German territorial gains.¹⁰² However, no one expected this process to be a quick one.¹⁰³

Some optimism surrounded the Italian campaign started in September 1943, and wishful thinking prompted American commanders, and even Churchill, to expect the fall of Rome by the end of October.¹⁰⁴ This optimism extended only to knocking Italy out of the war, not winning outright. Either way, by the start of winter 1943, the hopes of quickly ending the Italian campaign dissipated as dispatches decoded from Ultra transmissions made clear that Adolf Hitler planned on mounting a ferocious defense.¹⁰⁵

The Normandy landings did not decrease the expected length of war; successful landing did not guarantee immediate victory. Fear abounded that the struggle on the Continent would settle into a stalemate and that the Allies would not be able to make forward progress.¹⁰⁶ A momentary glimmer of optimism appeared in the last two weeks of August 1944.¹⁰⁷ The success in Normandy, compounded by the liberation of Paris, encouraged the commanders to believe that they could successfully drive straight to Germany and that the war would be over (as ever) by Christmas.¹⁰⁸ However, this optimism never had a chance to solidify into an altered expectation of the length of war as the end of August also revealed incredible logistical problems facing the Allies. An offensive was rejected out of hand because it could not be properly supplied.¹⁰⁹ At the same time, Germany showed that it was far from defeated, by attacking the Allied forces in Arnhem in September.¹¹⁰ Churchill fully expected that “the enemy would still be resisting when the New Year came.”¹¹¹ The expected length of war remained long.

expected stakes of war

The war was expected to be an existential struggle for survival from the very beginning, forcing Britain to prioritize short-term survival over long-term security in most instances. It was planned as a major war—one where the war effort would require the entire power of the nation. Before the war began, Britain assumed that the Germans’ opening salvo would be an attempted knockout blow through an overwhelming bombing campaign.¹¹² In 1938, it was predicted that 3,500 tons of bombs would be dropped on London on the first day of the war and 700 tons on each subsequent day.¹¹³ Using the Spanish Civil War as an example, Britain expected each ton of bombs to lead to fifty casualties. To prepare the nation for this expected attack, the government started evacuating children on September 1, 1939. In an operation called Pied Piper, approximately 1.5 million people were moved to the countryside.

After the war began, there were no opportunities to downgrade the expectation of an existential struggle. While the bombing campaign against Britain did not immediately materialize, the home front witnessed other signs of a high-stakes war. The introduced import controls limited the consumer goods available for purchase. Rationing began on January 8, 1940, starting with bacon, ham, butter, and sugar.¹¹⁴ With the evacuation of British troops from the continent and the fall of France, things grew more dire. In addition to the imminently expected bombing raids, Germany, having conquered France, now had the ability to stage an amphibious invasion of the British Isles.¹¹⁵ Britain, on the other hand, lost access to French produce and had to hurriedly readjust its plans for import schemes and distributions of raw materials to accommodate the loss of the large market.

The Battle of Britain represented the beginning of the actual existential struggle expected from the beginning of the war. Emphasizing the importance of the battle, Churchill stated on July 18, 1940, “our own British life, the long continuity of our institutions and our Empire” depended on it.¹¹⁶ The German invasion of the Soviet Union did not affect this assessment; the Soviet Union was expected to fall as fast as all the other states of Europe. Within two months of the invasion, Britain expected Germany to refocus on the British Isles.¹¹⁷

Even the US entry into the war did not shake the assessment of an existential struggle. While the US commitment convinced Britain that the war against Germany would eventually be won, the economic assistance provided by their newfound allies came with stringent conditions. Britain was expected to use every last ounce of domestic reserves before they could draw on US resources. And the US resources could only be used for the war effort directly; they could not be used to maintain the stability of the British economy.¹¹⁸ For Britain, the war remained a war for survival.

waiting to break with international law

From the outbreak of war, Britain waited for an opportunity to interfere with indirect German exports. To do this legally, they needed Germany to break international law with a high enough frequency and a large enough body count for the Prize Court to recognize a legitimate cause for reprisals. The Admiralty and the air minister compiled evidence of such German “atrocities,” which by November 4, 1939, amounted to thirty British and three Allied ships sunk illegally and thirty-three neutral ships attacked, sixteen of them sunk in circumstances believed to be illegal.¹¹⁹ However, it was not until seven neutral ships—most prominent among them the Dutch liner Simon Bolivar—were sunk by German mines, which had been laid without any warning and led to serious loss of life, that the case for retaliation could be made.

On November 28, 1939, a reprisal order-in-council was issued. It banned all merchant vessels from carrying goods from enemy or enemy-controlled ports. It also banned the carriage of goods of enemy origin or enemy property, regardless of where the ship was coming from or sailing to. All enemy exports found were to be discharged in a British or Allied port.¹²⁰ In essence, this prohibited neutral ships from carrying products of enemy origin even if they were already neutral property, ending a fundamental right of neutral states established in 1856.

On July 31, 1940, amid the German onslaught at the start of the Battle of Britain, Britain issued an order-in-council declaring products not expressly covered by a valid navicert or certificate of origin to automatically count as having an enemy destination or being of enemy origin.¹²¹ The presumption of guilt meant that doubt about the origin or destination of goods, where no information could be quickly recovered, was no longer an acceptable reason to permit neutral trade to continue. If neutral states wanted to engage in any trade at all, they were forced into the navicert system, where Britain could enforce greater control over most of world trade.

The only other alteration to the wartime commercial policy was the continual stream of notifications from the Foreign Office designating new territories as being “in enemy occupation,” keeping pace with German expansion. States under occupation were treated as the enemy for the purposes of the wartime commercial policy. To keep the export prohibited list current with German advances, in April 1940, a new geographic scope was added: “countries which were in imminent danger of being overrun by the enemy.”¹²² Products Britain wanted to keep out of enemy hands were preemptively prohibited from export to any territory in danger of falling to the Germans. Aside from keeping up with German expansion, the export prohibited list was not amended throughout the war. It was reorganized several times to make the work of the customs officials easier, which required adding some product descriptions to the list. However, these were not new prohibitions but clarifications about how existing prohibitions applied to specific items.¹²³

licensing prohibited trade

Despite implementing and maintaining a highly restrictive wartime commercial policy throughout the war, Britain granted specific licenses for direct trade with the enemy. These licenses were tightly controlled and issued under special circumstances. Licenses for export were almost never granted. As the British assessment of their commercial relationship revealed, the products exported to Germany in peacetime were in some way related to the war effort. Not only did this provide a strategic reason to prevent these goods from falling into enemy hands but the increased wartime domestic demand consumed most of the products previously designated for export. On the other hand, import licenses for products of enemy origin were occasionally granted. Specific consideration was given to products that were only obtainable from the enemy and were required for value-added manufacturing in Britain, especially if the finished goods were meant for export. To keep such industries exporting, thereby keeping the domestic economy from collapsing and foreign reserves from disappearing, Britain was willing to import enemy products.

Britain issued some open general licenses for trade in World War II. While such licenses granted the right to import and export to all destinations, they had little to do with trade with the enemy. The open general import licenses covered products such as fresh fish, books and newspapers, coal, gold, silver, tin, and cinematographic film.¹²⁴ Fish, coal, and tin were important German imports; the purpose of the general import license was to incentivize neutrals to sell these products to Britain as opposed to Germany. As for gold and silver, it was assumed that the enemy would have no interest in exporting these precious metals, much less to Britain. The import of books, newspapers, and film would increase the availability of information. Products for which general import licenses existed would never come from the enemy. The general export licenses were likewise not meant to facilitate trade with the enemy. They “represent[ed] arrangements by which the export control [was] exercised by some special method as, for example, control of cinematographic films by the Ministry of Information, and of coal and coke by export certificates issued by the Mines Department.”¹²⁵ Open general licenses existed for information aggregation, not relaxation of limits on trade.

When the goal was facilitation of direct trade with the enemy, Britain relied on specific licenses—granted to a specific merchant, for the import of a specific product in a predetermined quantity or value from a specific source. The rationale for granting licenses was that “it was sometimes necessary to allow trade with enemy territory in order ultimately to get for the Allies necessary commodities which it might otherwise be difficult to get or alternatively, to draw from enemy territory commodities which the enemy were in need of.”¹²⁶ Occasionally, when the imports were required to manufacture something for the Allies, these licenses were provided to merchants importing into neutral states.¹²⁷

A considerable portion of the products imported through specific licenses comprised dyestuffs and chemicals used in the manufacture of dyestuffs.¹²⁸ Attempting to reduce their textile industry’s dependence on enemy-produced dyes, Britain encouraged the formation of domestic dye manufacturing. They quickly ran into a problem: some of the chemicals required in the production of dyes were also only obtainable from the enemy. While Britain went forward with the domestic dye manufacturing, it could not fully escape the dependence on Germany. Between June 1940 and March 1942, on average around 4,500 pounds’ worth of dyestuffs was imported from the enemy per month. An additional 2,200 pounds per month of products used in the manufacture of dyes was imported from enemy sources between October 1940 and March 1942.¹²⁹ Four hundred pounds per month was provided to the enemy to import their publications.

Occasional licenses were granted for spare parts for brush-making machinery, electrical goods, hosiery machine needles and sinkers, agate bearing for making automatic weighting scales, X-ray tubes and apparatuses, spare parts for agricultural machinery, and cigarette paper folding machines.¹³⁰ As Britain anticipated in the analysis of their commercial relationship with Germany, they could not locate alternative suppliers of specialized machinery or parts for fixing such machinery.

The Ministry of Economic Warfare sporadically authorized sizable purchases of raw materials from territory occupied by the enemy, considering it a lesser evil to provide an occupied territory with funds, which might not fully find their way into German coffers, than to leave large quantities of raw materials for the Germans to use. For example, a purchase of esparto grass worth 30,000 pounds was made from a French owner in August 1940. Two purchases of ferro-chrome of Yugoslav origin were made: one in November 1941 worth 60,000 pounds and the other in January 1942 worth 15,000 pounds.¹³¹

Licenses for trade with the enemy were also requested by subsidiaries of British companies housed in neutral states. Subsidiaries were subject to the same legal restrictions as parent companies, which frequently compromised their ability to remain operational without importing products from the enemy. Licenses were granted to ensure the survival of subsidiaries only if this served the larger purpose of economic warfare against Germany.¹³² For example, J&P Coats, a British firm, had a Spanish subsidiary Fabra y Coats, which had a local monopoly on the production of thread. Unfortunately, they required German dyestuffs in their manufacturing process. Fabra y Coats was granted a license to purchase German dyes, after the Advisory Licensing Committee was assured that it was impossible to obtain the same from nonenemy sources.¹³³ When debating in 1943 whether it would be wise to continue this trade, the committee made its final affirmative decision after hearing “that a German firm in Alsace might export thread to Spain if Fabra y Coats were unable to supply the market and in this event the Germans would acquire more pestas by exporting thread than by merely exporting dyestuffs.”¹³⁴

At the beginning of the war, very rare cases of licensed trade with the enemy came from the Import Licensing Department. When the Import Licensing Committee was considering how to best allocate foreign reserves to ensure effective resupply of all materials necessary in the country, they came across a few products that posed difficult decisions. In peacetime, trade in these products mostly took place with enemy countries, and a prohibition on wartime trade would allow domestic firms to switch to neutral suppliers; however, domestic manufacturing was also being developed of an adequate size to fill domestic demand. For example, in 1937, 94 percent of spectacle glass came from enemy countries. When the issue was examined in September 1939, it was expected that in two months a domestic company, Pilkingtons, would be able to meet the domestic demand. The committee decided to license, for two months, the import of spectacle glass from enemy sources to “discourage traders from going to some trouble to establish new sources of supply, as there is no doubt that supplies from non-enemy countries should be cut off when Pilkingtons are in production.”¹³⁵ The choice was to allow the enemy some profit from exporting to Britain to spare domestic merchants the cost of readjusting to new suppliers twice within two months. There was, however, no question of prohibiting even neutral imports of products that could be developed domestically. But such considerations for domestic merchants ended with the fall of France, as Britain had to further restrict its import control and could not afford to spend foreign reserves to save their merchants some grief.¹³⁶

the role of domestic politics

The formation of British wartime commercial policy in World War II did not leave much room for interference by business interests. The government understood that severing practically all trade with the enemy came at a serious loss to some domestic industries but chose to take this action regardless.¹³⁷ Even highly controlled licensed trade was possible only when sufficient evidence showed no alternative sources of supply.¹³⁸ An additional complication for industry interests came from the negotiations among Allies for a unified wartime commercial policy. Britain and France, specifically, worked to standardize their export prohibited lists, especially in the set of products they wanted to prevent from reaching the enemy. Both countries agreed on a set of products that were “vital for the enemy to import” and thus most advantageous for both states to prevent trade in.¹³⁹ Industry representatives would have had to lobby more than one government to create a gap in economic warfare against Germany.

To the extent industry voices were heard, it was not in the formation of wartime commercial policy but in its implementation. The government interacted with numerous trade associations to take advantage of their specialized knowledge about both domestic production and foreign suppliers in their industry. Furthermore, to reduce potential accusations of corruption or favoritism in the granting of trade licenses, trade associations were asked to allocate licenses among the merchants in their industries. When the associations themselves attempted to bring domestic rivalry into the process, the Licensing Department did not accept their advice. For example, after asking the Woven Manufacturers’ Association for information about the import of wire gauze, the department judged that “their advice [was] colored by their former rivalry with the importers who used to be able to undersell them.”¹⁴⁰ For the most part, however, cooperation with trade associations was mutually beneficial. For example, the Board of Trade, in assessing the allocation of licenses between domestic importers of watches and clocks run by the Trade Committee of the Horological Section of the London Chamber of Commerce, noted, “There has been little criticism from the trade, and no grounds for suspicion that members of the Section have been given more favorable treatment.”¹⁴¹

Overall, Britain designed a most restrictive wartime commercial policy based on the security necessities of an existentially threatening prolonged war; it did not allow domestic interests to interfere with its formation. Yet as in World War I, Britain used information provided by domestic industry to make the policy more efficient. The government used the deep industry knowledge of trade associations to determine the minimum necessities of domestic industry survival and the equitable allocation of trade licensees among members.

British wartime commercial policy for World War II was designed for a long, existential struggle. While decision-makers recognized that products differed in their conversion times into military capabilities, they expected the war to outlast even the longest supply chain. Every product could add to the German war effort; therefore, trade in all products had to be prohibited. Decision-makers likewise recognized that some products were more important to their own economy and that severing this trade would adversely affect the long-term health of the economy. But World War II was a war for national survival; Britain had to make significant sacrifices in trade to deny the enemy the ability to increase its military capabilities.

This restrictive wartime commercial policy was not a reflection of lessons learned from World War I. Trade was severed with Germany because it was the best policy for the situation, not because severing trade with the enemy had become the default policy. As this chapter demonstrated, Britain’s leaders created an economic warfare machinery that was highly adaptable to specific circumstances. Wars were divided into minor, major, and great wars; products were categorized as goods necessary for war purposes, goods vital for civil purposes, and goods necessary for ordinary civil purposes; even geographic contingencies were separated between circle and sector cases. All of these situations called for their own approach to a wartime commercial policy. The policy against Germany was so restrictive because of the specific war expectations for the coming war.

This chapter also showed the importance of licensing for carefully controlling wartime trade with the enemy under the harshest conditions. Britain permitted the import of replacement parts for specialized German-made machinery necessary for essential industries since these parts could only be obtained from enemy sources. Dyestuffs of enemy origin were still imported directly from the enemy to keep the vital textiles industry alive. While these exceptions forced Britain to contribute to the German war effort, severing this trade would have done great harm to Britain’s economic stability and consequently to its ability to prosecute the war. In the midst of a long and intense war, sometimes military gambles were made to purchase raw materials from occupied territory, with the government hoping the proceeds would not reach Germany, and definitely preventing the German state from making use of the raw materials.

Finally, the chapter returned to the importance of neutral rights. Decision-makers in Britain faced the painful understanding that neutral rights ran contrary to the needs of economic warfare. The more trade between neutrals and the enemy belligerent was protected by international law, the weaker the British efforts to impose economic pressure on Germany. Yet despite the expectation of a long and existential war, Britain still planned to start World War II respecting neutral rights. They anticipated that Germany would target neutral commerce and planned to take advantage of this to reciprocate with similar measures to restrict German trade with the rest of the world. However, the two decisions were always contingent: had Germany respected neutral rights, Britain was set to follow suit.