In the three decades prior to World War I, Britain's paradox was whether to cooperate with or punish an emerging Germany, Japan, France, Russia, and the United States. Based on the need for economy, successive Chancellors of the Exchequer pressed for cooperating with the contenders. Members of the services and Conservatives pushed to punish these contenders, countering that Britain could afford the rising naval expenditure needed to implement such a programme. The existing literature emphasizes the role of geopolitics, domestic constraints, and individual idiosyncrasies to explain Britain's foreign policy adjustment. I argue that the nature of the foreign commercial policy of the contenders guided Britain's response. Due to the special affinity among commercially liberal states, Britain cooperated with America and Japan, ceding regional governance to both aspiring regional hegemons. Britain did, however, punish non-liberal France, Germany, and Russia by implementing new naval construction programmes and concentrating freed-up military resources until these countries capitulated in their naval challenge.