Britain, however, was insulated from French military power; only an indirect strategy of economic warfare remained possible. Thus far Britain had driven most French merchant shipping from the high seas, and in desperation French merchants sold most of their ships to neutrals, allowing the United States to surpass France in the size of its merchant fleet. But after his string of military victories, Napoleon believed that he could choke off British commerce by closing the Continent to its ships and products. With limited opportunities to sell its manufactured goods, he believed, the British economy would suffer from overproduction and unemployment, while the lack of foreign gold in payment for British exports would bankrupt the treasury. As France moved into Britain’s foreign markets, Britain’s economic crisis would drive its government to seek peace. Accordingly, Napoleon launched the “Continental System”: in the Berlin Decree of November 1806, he prohibited British trade with all countries under French influence, including British products carried by neutral shipping. When the British retaliated by requiring all neutral ships to stop at British ports for inspection and licenses, Napoleon threatened to seize any ship stopping at English ports. Thus, a total naval war against neutrals erupted.

Economic warfare took its toll on all sides. While France did make inroads in cotton manufacturing in the absence of British competition, France and especially its allies suffered terribly from the British blockade, in particular from a dearth of colonial raw materials. The great Atlantic ports of Nantes, Bordeaux, and Amsterdam never recovered, as ancillary industries such as shipbuilding and sugar refining collapsed. The axis of European trade shifted decisively inland. The Continental System did strain the British economy, driving down exports and gold reserves in 1810, but the blockade was extremely porous. Because Europeans liked British goods, smugglers had incentive to evade the restrictions in such places as Spain and Portugal. By 1811, moreover, a restive Tsar Alexander withdrew from the Continental System. Thus, the most dire effect of the Continental System was the stimulus it gave Napoleon for a new round of aggression against Portugal, Spain, and Russia.

By 1810 almost 300,000 imperial troops were bogged down in Iberia, struggling against a surprisingly vigorous Spanish resistance and a British expeditionary force. Then, in 1812, Napoleon embarked on his most quixotic aggression—an invasion of Russia designed to humble “the colossus of Northern barbarism” and exclude Russia from any influence in Europe. The Grand Army of 600,000 men that crossed into Russia reached Moscow without inflicting a decisive defeat on the Russian armies. By the time Napoleon on October 19 belatedly ordered a retreat from Moscow, which had been burned to the ground and was unfit for winter quarters, he had lost two-thirds of his troops from disease, battle casualties, cold, and hunger. The punishing retreat through the Russian winter killed most of the others. Yet this unparalleled disaster did not humble or discourage the emperor. Napoleon believed that he could hold his empire together and defeat yet another anti-French coalition that was forming. He correctly assumed that he could still rely on his well-honed administrative bureaucracy to replace the decimated Grand Army.