Britain’s Grand Strategy of Restrained Punishment
against Germany and a force to protect its trade routes.43 In 1937, on the ‹rst possible day allowed by treaty, Britain laid down ‹ve new battleships. In 1938, two additional battleships were laid down. Modernization of older ships was also important to the capital ship program.
While the DRC viewed Japan as the immediate threat, Germany was seen as the long-range threat to Britain’s national security interests. Britain’s primary fear was that Germany might launch a preemptive knockout air strike against Britain. In order to deter a German air attack, the DRC recommended the completion of ‹fty-two bomber squadrons and substantial reinforcements of the Fleet Air Arm. The DRC also called for the creation of air reserves. An Army expeditionary force was to be pre- pared to put four infantry divisions, one tank brigade, one cavalry division, and two air defense brigades on the Continent within one month of war, with the goal of defending the Low Countries (Gibbs 1976, 110–11).
Free-trade constituents were apprehensive about the economic national- ists’ program of punishing Germany, Japan, and Italy through rearmament. First, they believed that such an expensive program could not be ‹nanced without doing damage to the economy and threatening Britain’s promis- ing economic recovery. Second, they feared that another Great War would enhance the role of the state in the regulation and management of the economy, curbing the in›uence of traditional ‹nance and the City (as World War I had shaken gentlemanly capitalism). Such an outcome would permanently shift the locus of relative political strength to the eco- nomic nationalist faction. To save their coalition, the free trader solution was to moderate the extreme policies of the economic nationalists’ rear- mament program, press for arms limitation agreements with Germany and Japan in order to lower the cost of hegemony, and exchange British cred- its and loans for arms control arrangements, participation in collective security, and their return to the League of Nations.44
Free traders, especially the Labour Party, Treasury, the Board of Trade, and the Bank of England, opposed the DRC’s rearmament program for three reasons.45 First, Britain was already running a trade de‹cit, and the DRC’s rearmament program would increase the size of this de‹cit. Between 1931 and 1938, Britain ran a balance of trade de‹cit and a bal- ance of payments de‹cit in every year except for 1935 (Murray 1994, 403). Britain’s dependence on foreign imports for food, raw materials, and engi- neering products required that England maintain a high level of exports in