The boom of the late 1920s resulted in large trade deficits with the United States, which was protecting its own producers with import tariffs. With the onset of depression, the Labour government of 1929 struggled to retain its free trade principles, but empire protectionism emerged as a serious possibility. Furthermore, the dominions were badly hit by falling prices for their products and called for a system of imperial preference.
The Conservatives dominated the National Government of 1931, and were more in favour of protection than their predecessors. In 1932 at the Ottawa conference, British and Dominion delegates negotiated a tariff system but did not achieve consistency due to the contradictory requirements of participants.
While the British government needed to protect its own farmers from cheap imports, the dominions wanted Britain to exempt their own products and place high tariffs on agricultural imports from outside the empire. Despite its difficulties, along with further financial measures, the tariff system did provide some relief from the economic storm. The government also sought more effective economic coordination.
In 1931 Britain abandoned the Gold Standard because reserves of the metal became insufficient to support the pound. The relationship between the pound and the various colonial currencies became unstable and undermined imperial trade. The solution to this problem was the Sterling Area in which all Commonwealth countries formed a unit, with the currency of each member fixed against the pound. Canada did not take part, as it was linked to the dollar. The Sterling Area gave respite from wild currency fluctuations, assisted trade within the empire and enabled member states to obtain further loans in London's financial markets.
The political independence of the dominions increased and economic ties with Britain strengthened. The effect of the positive economic shift during the 1930s made the dominions more dependent upon British finance. Apart from South Africa, imperial ties ensured the dominions supported Britain's war preparations in the late 1930's.