The Dominion of Newfoundland was an exception to orderly constitutional progress. Newfoundland was dependent on the fishing industry and was severely affected by the depression of the early 1930s, with its government going bankrupt in 1933. Following a report by a Royal Commission, Newfoundland's dominion status was suspended in 1934 and a 'Commission Government' was installed until the country became financially viable again. During the war, Canada became increasingly involved in Newfoundland because it was of strategic importance for control of the Atlantic. Following a referendum, Newfoundland became a province of Canada in 1949.
In the early 1930s, during the premiership of the Conservative R.B. Bennett, tariffs were raised against American imports in response to the imposition of tariffs on Canadian goods. The advent of depression in Britain also raised eagerness for trade protection. At the Imperial Conference of 1930 Bennett declared that Canada might be prepared to come to an agreement on the questions of tariffs and trade.
During 1932 Canada hosted the Imperial Economic Conference in Ottawa to discuss empire policy on trade and tariffs, but failed to produce an empire-wide system of protection. Canada and Britain did, however, reach a bilateral agreement whereby Canada was given preferential treatment for various agricultural products, in return for a reduction of tariffs on some British manufactures.
The question of Anglo-Canadian tariffs and trade was again broached in 1937. The anti-protectionist, Mackenzie King, was now Prime Minister again. Canada had already come to a new trade agreement with the US in 1935 and this, together with the British agreement, was now renegotiated. In terms of the new agreements tariffs were decreased across the board. Canada lost preferential treatment by Britain but gained freer access to American markets. It was another indicator of Canada's loosening bonds with the UK.
The threat posed by fascist powers was now very real, and when the Second World War broke out Canadians volunteered to serve, again playing an important role in Britain's war effort. War, however, drew Canada into a closer relationship with the US through formal defence agreements and economic arrangements and greatly weakened Canada's relationship with Britain.