By late 1936 German competition was manifesting itself in several unwelcome ways. The British government's response was made within the context of anxieties about the effect of rearmament on the domestic economy, particularly its likely impact on inflation and the balance of payments, the conflicting pressures for trade liberalisation and more effective protection, and with a worsening political-strategic position that created its own impetus for economic appeasement. One result was the Anglo-American trade agreement of November 1938 which has been interpreted by some as marking the end of the Ottawa system. If so, this view can only be accepted with considerable reservations: although there were arguments and even pressures for liberalisation, they were never decisive, for not only was the treaty the product of diplomatic imperatives but the actual form of the agreement between Britain and the USA was distinctly illiberal.

German competition

In hammering out future agricultural policy in 1936–7, levy-subsidy schemes had been opposed on the grounds that they were likely to accelerate inflation, thus endangering Britain's international competitiveness, and that they were likely to alienate trade partners. With the trade agreements coming up for renewal, Whitehall was anxious to keep any modifications to them to a minimum, not least because the UK's bargaining leverage was no longer as strong as it had been in 1932–3. A major cause of Britain's weaker position was the expansion of Germany's buying power and the resurgence of German international economic competition.