During the 1760s and early 1770s, relations between the Thirteen Colonies and Britain became increasingly strained, primarily because of resentment of the British Parliament's attempts to govern and tax American colonists without their consent. This was summarised at the time by the slogan "No taxation without representation", a perceived violation of the guaranteed Rights of Englishmen. The American Revolution began with a rejection of Parliamentary authority and moves towards self-government. In response, Britain sent troops to reimpose direct rule, leading to the outbreak of war in 1775. The following year, in 1776, the Second Continental Congress issued the Declaration of Independence proclaiming the colonies' sovereignty from the British Empire as the new United States of America. The entry of French and Spanish forces into the war tipped the military balance in the Americans' favour and after a decisive defeat at Yorktown in 1781, Britain began negotiating peace terms. American independence was acknowledged at the Peace of Paris in 1783.

The loss of such a large portion of British America, at the time Britain's most populous overseas possession, is seen by some historians as the event defining the transition between the "first" and "second" empires, in which Britain shifted its attention away from the Americas to Asia, the Pacific and later Africa. Adam Smith's Wealth of Nations, published in 1776, had argued that colonies were redundant, and that free trade should replace the old mercantilist policies that had characterized the first period of colonial expansion, dating back to the protectionism of Spain and Portugal. The growth of trade between the newly independent United States and Britain after 1783 seemed to confirm Smith's view that political control was not necessary for economic success.