A Flawed Hegemony

At the height of its power from the 19th to the 20th centuries, the British Empire was famously called “the empire on which the sun never sets,” a fitting depiction of its immense global influence. Throughout these years, Britain was the world’s dominant power, controlling nearly 25% of the Earth’s landmass and leading in both industrial and military capabilities. Despite this dominance, by the start of World War 2 in 1939, the British were struggling to keep its empire intact. 

Maintaining this vast empire incurred enormous costs. The Royal Navy, the largest in the world, was responsible for defending Britain’s colonies and trade routes, but this tied up a significant portion of manpower at sea. Sailors were not engaged in productive labor like producing goods and services, creating a financial burden on the British treasury. Similar cost-benefit dynamics can be seen in other European colonial empires, with the Belgian Congo standing as a rare exception. It was highly profitable due to its abundant natural resources, and unlike other colonies, it was run as a private enterprise without subsidies from the Belgian government. 

While imperialism proved extremely lucrative for British businessmen and investors, it is unclear if the empire as a whole benefited the average British citizen economically. It is estimated that colonial trade accounted for only a small proportion of Britain’s overall economy. Colonial profits likely financed only a modest share of Britain’s investment and capital formation (approximately 7% to 15%). By 1939, the majority of Britain’s economic activity was domestic or tied to international trade with Western Europe and the U.S.

The British had also become increasingly reliant on its empire for food production. At the start of World War 2 in 1939, Britain was importing 20,000,000 long tons of food per year, including about 70% of its cheese and sugar, nearly 80% of fruits and about 70% of cereals and fats. Britain also imported more than half of its meat, and relied on imported feed to support its domestic meat production. The country had become overly reliant on its empire to produce food. 

One of the major blows to the British Empire’s financial stability came during World War 1. The costs of war loans and large-scale arms purchases drained Britain’s gold reserves, turning it from the world’s largest creditor in 1914 to its largest debtor by 1918. Britain’s traditional economic model, reliant on inexpensive industrial exports, was further weakened as many nations imposed tariffs throughout the 1920s. The situation deteriorated further during the Great Depression, when Britain’s overwhelming debts led it to default on loans from the U.S. This began a vicious trend of Britain taking out loans it could not hope to repay, and relying more and more on the U.S.  Britain borrowed heavily from the U.S. to finance the war effort in World War 1, increasing its national debt from £650 million in 1914 to £7.40 billion in 1919. Later, In 1945, Britain borrowed $4.34 billion from the U.S. to help rebuild its economy and infrastructure after World War 2. The loan was made up of a $3.75 billion line of credit and a $586 million “lend-lease” loan facility. The final payment on the loan was made in 2006, after 61 years.

The Rise of The U.S.

By 1939, despite not being a global hegemon and experiencing an economic recession, the U.S. was rising as the leading economic and political power. This influence had already been evident during World War 1, when the U.S. officially entered the conflict in 1917, helping to push the Allies to victory over the Central Powers. Even before its direct involvement, the U.S. had provided substantial economic and material support to the Allies. American industries supplied weapons, ammunition, food, and other critical resources, which were vital to sustaining the war effort, especially as the British faced shortages in manpower, weapons, and food. This resulted in a 44-month economic boom for the U.S from 1914 to 1918, first as Europeans began purchasing U.S. goods for the war and later as the U.S. itself joined the battle. As did World War 2, World War 1 helped boost the American economy, slowly adding to its economic and political power. 

In 1914, the U.S. was also a net debtor in international capital markets. However, after World War 1, the U.S. began investing heavily abroad, particularly in Latin America, effectively taking on the role traditionally played by Britain and other European capital exporters. With Britain weakened by the war, New York emerged as a rival to London, if not surpassing it, in the race to become the world’s leading financial center, as noted by NBER Research Associate Hugh Rockoff. In the mid-1880s, the British accounted for 43% of the world’s manufactured exports, while the U.S. contributed only 6%. By 1913, however, the British share had dropped to 32%, while the U.S. share had more than doubled. 

The growing global influence of the U.S, was further evident during the Great Depression, which affected not only the U.S. but the entire world. After the Wall Street Crash of 1929, the U.S. economy collapsed, triggering a domino effect on global trade. This decline in international trade particularly hurt economies reliant on American investments and markets, leading to widespread economic hardship, especially in Europe, which was still recovering from World War 1. By 1929, a significant portion of trade between Britain and the U.S. was based on raw materials, with estimates suggesting that around 50-60% of their bilateral trade involved the exchange of primary commodities like coal, cotton, rubber, and oil, depending on the specific products being analyzed. 

Even though the U.S. was still recovering from the Great Depression, it had one of the highest GDPs in the world, more than twice that of the Soviet Union, the second-largest economy. The combined economies of Britain, along with its dominions and colonies, amounted to just over 680 billion in 1990 dollars, highlighting that the U.S. had solidified its position as the world’s leading economy during the interwar period, despite the challenges of the Great Depression.

The Impact of World War 2

World War 2 served as an exclamation mark in the U.S. dominance in its relationship with the British. By 1940, just a year into the war against the axis powers (Nazi Germany, Italy and Japan) , the French had been conquered and Britain was efficiently neutralized by the Nazis. British colonies in Hong Kong, Singapore, and Burma had also been seized by the Japanese, leaving most of its global empire on the brink of collapse. In this time of despair Winston Churchill, Britain’s hard nosed prime minister, privately tried to persuade U.S. president F.D.R. to fully commit the previously isolationist U.S. into the war against the Axis. Churchill understood that if the British had any chance of defeating Germany, it must receive substantial military and economic assistance from the U.S. Throughout the course of the war the U.S. would supply over 31 billion dollars of military aid to Britain, further supplying them more equipment through a lend-lease deal between both nations. 

In August of 1941, one of the most consequential, but unknown meetings took place between F.D.R. and Churchill in Newfoundland. This meeting discussed their respective war aims and an outline post-war system. Most importantly, the meeting concluded with the signing of the Atlantic Charter. This charter included 8 common principles that each nation would be committed to supporting in the post war. These principles included not seeking territorial expansion; to seek the liberalization of international trade; to establish freedom of the seas, and international labor, economic, and welfare standards. Most importantly, both the U.S. and Britain were committed to restoring self-governments in all countries occupied during the war and ensuring that all peoples could choose their own form of government. These principles became the foundation of the future United Nations charter and were further refined at later conferences between the U.S. and Britain, including Arcadia, Tehran, Yalta, and Potsdam, which significantly reshaped post-war Europe and the world. These ideals also set the stage for the dismantling of the British Empire, although Churchill may not have realized it at the time, and paved the way for the U.S. to take the lead in global affairs between the two nations.

In Newfoundland, Churchill’s primary goal was to “to get the Americans into the war.”Although the meeting was unsuccessful in convincing the Americans to join the war, it revealed Britain’s desperation to recruit U.S. support. A few months later, in December 1941, the U.S. was drawn into the conflict. Japan launched a surprise attack on the U.S. naval base at Pearl Harbor, nearly crippling the American fleet stationed there. Shortly after, Nazi Germany declared war on the U.S, bringing the U.S. into both the Pacific and European theaters of the war.

The British, fighting fiercely to defend mainland Britain, defied the Nazis during the Battle of Britain, buying time for a counteroffensive in North Africa, later joined by the U.S. Between 1942 and 1945 three million Americans passed through Great Britain, a near occupation of the island. Additionally, the largest military invasion in history, known as D-Day, took place on June 6, 1944. It was primarily led by American forces, launched from Great Britain to invade Nazi-occupied France. Although the war for the Americans began on U.S. soil at Pearl Harbor, the American homeland remained largely untouched, giving the U.S. a significant economic and political advantage following the Allied victory. The U.S. also emerged from the war as the only nation with a nuclear bomb and demonstrated its willingness to use it on Japan twice to help end its war in the Pacific. While Britain and Europe faced the challenge of rebuilding, the U.S. seized the opportunity to assist its allies financially, gaining enormous leverage in the political and economic restructuring of Western Europe, which became dominated by U.S. interests. The U.S. and Britain also shared ideological goals in opposing the communist power of the U.S.S.R. Even by the war’s end in 1945, tensions were brewing among the allies with the Soviet Union and its leader, Joseph Stalin. Britain was especially interested in seeing the now-dominant U.S. take a leading role against the U.S.S.R. in Western Europe, as Britain worked to regain its strength. Lastly, the U.S. economy had been invigorated by wartime production, which not only supplied the Allies but also established the U.S. as the world’s leading industrial power. By the end of the war, the U.S. accounted for about half of global industrial output.

Conclusion 

The early 20th-century decline of the British Empire marked a pivotal shift in global history. Once a vast empire that controlled large portions of the world, Britain found itself nearing collapse by 1940 at the hands of the Nazis. Meanwhile, one of its former colonies, the U.S, rose to prominence, surpassing the once-mighty empire to become a global hegemon. As Britain’s dominance waned, the U.S. took its place as a leading power, asserting itself economically, militarily, and ideologically. Its overstretched colonial empire, World War 1 and 2 revealed the fragility of Britain’s imperial foundation, draining its resources and underscoring its dependence on American support. The U.S., in contrast, capitalized on wartime production, strategic partnerships, and financial power to shape the post-war world.

A key moment in this transition, sometimes overlooked by historians, was the signing of the Atlantic Charter in 1941. This document, which emphasized self-determination and free trade, laid the groundwork for a new global order driven by American ideals rather than British imperialism. Although Britain sought to regain its global standing, it became evident that the U.S. would be the principal force shaping the post-war international system and continues to hold this mantle today.