Dollar Diplomacy

Photo by: Tomislav Forgo

Eugene P. Trani
In his final message to Congress on 3 December 1912, President William Howard Taft
looked back at the foreign policy followed by the United States during his administration
and noted: "The diplomacy of the present administration has sought to respond to
modern ideas of commercial intercourse. This policy has been characterized as
substituting dollars for bullets. It is one that appeals alike
to idealistichumanitariansentiments, to the dictates of sound policy and strategy, and to
legitimate commercial aims."
Taft's remarks gave formal definition to the term "dollar diplomacy," a phrase
synonymous with the diplomacy his administration pursued between 1909 and 1913.
During those years the goal of diplomacy was to make the United States a commercial
and financial world power. It was a narrowly constructed view of foreign relations,
arising in great part out of the natural alliances between the corporate lawyers who
came to people Taft's administration and the bankers and businesses that were their
clients. Thus, the Taft administration concentrated on assisting American businessmen
in the protection and expansion of investment and trade, especially in Latin America and
the Far East.
The idea of protecting American commercial interests around the world was not new
and had been part of the diplomacy of the United States since its earliest days. Efforts
to trade with British and Spanish colonies in the Western Hemisphere, defense of the
rights of neutrals to trade in wartime, and support of the most-favored-nation concept
were all predecessors of dollar diplomacy. Yet dollar diplomacy was the subject of much
controversy during the Taft administration and in the years that followed.
Much of the contemporary controversy over dollar diplomacy stemmed from the fact that
Taft, the handpicked successor of Theodore Roosevelt, had embarked on a policy that
differed from the one Roosevelt had followed. Roosevelt was an expansionist and had
supported the American move into world affairs. For a variety of reasons, Roosevelt
believed expansion necessary for the United States, with benefits for the rest of the
world. He viewed foreign affairs in strategic terms, with Europe as the center of world
power. He felt an affinity for Britain and based much of his diplomacy on cooperation
between Washington and London. To be sure, Roosevelt supported the expansion of
American business throughout the world, but he was much more concerned with the
balance of power and improving the Anglo-American relationship. As a result, Roosevelt
mediated the Russo-Japanese War (1904–1905) and the conflict between France and
Germany over Morocco in 1906.
Taft came to office with a different view. Ever the lawyer, he viewed foreign policy in
terms of legal institutions. He thus came to support arbitration treaties. He had
differences with Roosevelt over Europe, feeling that the United States had little or no
interest in events there. Taft kept the United States out of the second Moroccan crisis in
1911, and, while supporting mediation, he was not willing to mediate the Italo-Turkish
War (1911) nor the first Balkan War the following year. Taft believed that the most
important relations with Europe occurred in developing nations where the United States
and Europe shared interests.
Taft's view of the role of American business in foreign policy also differed from
Roosevelt's. Taft long had been concerned with foreign trade. He recognized that by
1909 the United States was producing more goods than Americans could consume and
therefore had to increase exports. It was perhaps symbolic that during the Taft
administration, in 1910 to be exact, that the United States began to export more
manufactured goods than raw materials, changing the focus of trade from industrial
nations in need of raw materials to lesser developed countries that required finished
products. In this regard the developing areas of Latin America and East Asia seemed
particularly important. A concentration on economic opportunities in Latin America and
East Asia, especially China, would have many benefits. Such a policy would help the
American economy by solving the problem of overproduction. It would benefit recipient
nations, bringing economic progress, which in turn would mean political stability; and
stability would guarantee American strategic interests in underdeveloped areas. It was
not surprising that in Taft's first annual message (7 December 1909) he stated: "To-day,
more than ever before, American capital is seeking investment in foreign countries, and
American products are more and more generally seeking foreign markets."
While Taft had ideas as to the diplomacy the United States should follow, he had no
interest in serving as his own secretary of state, further distinguishing his administration
from Roosevelt's. The man whom Taft chose to carry out his foreign policy, after
refusals by Elihu Rootand Henry Cabot Lodge, was Philander C. Knox, a wealthy
conservative Pennsylvania lawyer then in the Senate. Knox had been attorney general
between 1901 and 1904; and this fact, in the president's view, more than made up for
his lack of experience in foreign affairs, since Taft wanted lawyers in his cabinet. Knox
had been what is now known as a corporation lawyer, the Carnegie Steel Corporation
being one of his clients. He was thus sympathetic to big business.
Knox shared Taft's views concerning the goal of American diplomacy—protection and
expansion of economic interests. A State Department memorandum of 6 October 1909
pointed out that all developed countries were seeking trade and noted that trade was
essential to American prosperity. There could be no more important task than expanded
investment and trade. Diplomacy had to support American financiers and businessmen
by finding opportunities abroad. The State Department appeared to anticipate the
activities of the Bureau of Foreign and Domestic Commerce in the 1920s, when Herbert
Hooverwas secretary of commerce, although Hoover strenuously objected to the
concept of dollar diplomacy, making it a priority following his election to the presidency
to eliminate its effects, particularly in Latin America. But locating commercial
opportunities abroad was not enough for Knox and Taft. As the 1909 memorandum
indicated, the United States would insist that Americans compete with Europeans in the
developing countries by buying bonds, floating loans, building railroads, and
establishing banks.
So it was that the State Department during the Taft years turned to dollar diplomacy.
The policy gained support throughout the diplomatic corps, a fact that was especially
important as Knox concentrated on policy and allowed subordinates to run day-to-day
operations. Francis M. Huntington Wilson, first assistant secretary of state, presided
over the daily activities of the State Department and carried out a reorganization of the
department into geographical bureaus. Huntington Wilson, Willard D. Straight, and
Thomas C. Dawson, the latter two the initial heads of the Division of Far Eastern Affairs
and the newly created Latin American Division, respectively, all shared the views of Taft
and Knox on trade and investment.
When the administration talked about dollar diplomacy in Latin America, it was almost
always referring to the Caribbean, which had strategic implications because of the soon-
to-be-completed Panama Canal. Concerned over the general instability of the Central
American governments, Taft and Knox set a goal of stable governments and prevention
of financial collapse. Fiscal intervention would make military intervention unnecessary.
As Knox told an audience at the University of Pennsylvania on 15 June 1910: "True
stability is best established not by military, but by economic and social forces…. The
problem of good government is inextricably interwoven with that of economic prosperity
and sound finance; financial stability contributes perhaps more than any other one
factor to political stability."
Such statements did not mean that Taft and Knox were unwilling to use military power
in the Caribbean. They did use it. They thought that fiscal control would lessen the need
for intervention. They believed that the United States and nations of the Caribbean
would both benefit. For the United States, an increase in trade, more profitable
investments, and a secure Panama Canal would result. For the local inhabitants, the
benefits would be peace, prosperity, and improved social conditions.
Taft and Knox believed that the way to control the finances of the Caribbean countries
was to take over customhouses, following the example of the Roosevelt administration
in the Dominican Republic. According to the Taft-Knox doctrine, it was important to get
the Caribbean nations to repay European debts by means of loans from American
businessmen or at least from multinational groups in which Americans participated. In
Nicaragua, Honduras, Guatemala, and Haiti, the United States pushed refunding
schemes. The State Department believed that these sorts of reforms would end political
instability in the Caribbean.
Nicaragua proved the classic case of dollar diplomacy in the Caribbean. While the
American economic interest in Nicaragua was small, the country had been an alternate
route for the trans-Isthmian canal. The United States was sensitive to activities in
Nicaragua. The longtime dictator José Santos Zelaya had never been popular in
Washington and was seen as the cause of much instability in Central America, the
result of his efforts to dominate the area. When Knox took control of the Department of
State, he ordered withdrawal of the chargé d'affaires from Nicaragua, began to press
private business claims against the Zelaya government, and sought, albeit
unsuccessfully, to discourage a Franco-British consortium from making a loan. In
cooperation with Mexico, the United States also sent warships to stop Zelaya from
filibustering in Central America.
In October 1909 the situation became complex with the outbreak of civil war in
Nicaragua. Insurgency centered on the eastern coast in Bluefields, a city dominated by
foreign businessmen and planters. These foreigners and conservative politicians in
Nicaragua followed the lead of General Juan J. Estrada. Foreign money, some of it
American, bankrolled the revolutionaries. While declaring itself neutral, there was little
question as to which side the U.S. government supported. Formal neutrality
disappeared when Zelaya executed two Americans captured while fighting with the
rebels. The United States broke off relations, asserting that the revolutionaries
represented "the ideals and the will of a majority of the Nicaraguan people more
faithfully than does the Government of President Zelaya."
Washington made known that Zelaya's resignation in late 1909 was not enough.
Huntington Wilson pushed for expulsion of the liberal party from power, hoping the
rebels would take control. U.S. forces landed at Bluefields to make sure fighting did not
damage American interests. Successes followed for the insurgents, and by the end of
August 1910 they had taken the capital, Managua. The United States expected fiscal
reform in Nicaragua, and refused to recognize the new government until it had agreed
to American control of the customhouses and to the refunding of the debt owed to
British bankers by means of a loan from American financiers. Dawson went to
Nicaragua to negotiate the terms of recognition.
This did not end the difficulties, for the American demands were unpopular. The United
States went ahead with its financial program, even though the Senate delayed action on
the treaty (known as the Knox-Castrillo Convention) worked out between Washington
and Managua in June 1911, which called for refunding of Nicaragua's internal and
external debts and administration of the customs by a collector approved by American
officials. While the Senate debated, bankers went ahead with the rehabilitation of
Nicaraguan finances, making a loan with the national railroad and the national bank as
collateral. American citizens also began to collect Nicaraguan customs and to serve on
a mixed claims commission, all in anticipation of Senate action. Much to the distress of
Taft and Knox, the treaty died in a Senate committee in May 1912, along with a similar
treaty with Honduras.
Another revolution broke out in Nicaragua in July 1912, and this also brought American
intervention. Approximately 2,700 marines landed to protect U.S. citizens and property
and to suppress the revolution, which was over by early October. Although the majority
of the marines was soon withdrawn, a legation guard remained as a symbol of
intervention until 1925. The Taft administration went out of office in March 1913,
convinced that the policy it had followed in Nicaragua was correct. Intervention had
proved necessary, the administration admitted, but it was only for a short time and
continued fiscal intervention would make further military intervention unlikely.
The Taft-Knox policy toward Nicaragua, and for that matter toward the rest of Central
America, was unquestionably offensive to Latin Americans. Even a goodwill visit
through the Caribbean by Knox could not overcome suspicions. Knox said the United
States did not covet an inch of Latin territory, but such utterances were not accepted
south of the Rio Grande.
In the years after 1912, political leaders in both Latin America and the United States
attacked Taft's policy toward Central America. Elihu Root believed that dollar diplomacy
rekindled Latin fears and suspicions of the United States that he had worked so hard to
overcome while secretary of state from 1905 to 1909. In 1913, President Woodrow
Wilson made clear that he would not support special interests trying to gain advantages
in Latin America. The Bryan-Chamorro Treaty, finally approved in 1916, contained
provisions similar to the second treaty Knox had worked out with President Adolfo Díaz
of Nicaragua in early 1913. Even so, Wilson and Secretary of State William Jennings
Bryan were much less interested in protecting U.S. businesses in Latin America than
Taft and Knox. Dollar diplomacy as a policy was at an end in Latin America. Criticism of
the policy continued. Like President Hoover, President Franklin D. Roosevelt renounced
dollar diplomacy. Both presidents attempted to construct what became known as the
Good Neighbor Policy in dealing with Latin America, and the concept of the Taft-Knox
doctrine was all but dead by the time of the Hoover administration. In the long run, of
course, American businessmen did increase trade and investment in Latin America, but
it was World War I, not dollar diplomacy, that decreased European economic interests
in that part of the world.
If the results of dollar diplomacy were meager in Latin America, where the United States
was the dominant power, they were a disaster in China, the target for the Taft-Knox
policy in East Asia. Of course, the situation in the Far East was difficult. In the late
nineteenth century and the first decade of the twentieth century much change had taken
place. With victories over China in 1895 and Russia in 1905, Japan had become the
major power in the Far East. Theodore Roosevelt had supported Japan's new
prominence in East Asia. He decided that Japan did not threaten American interests
there. He saw the Japanese as a barrier to Russian expansion; a preserver of the
balance of power in East Asia; protector of the Open Door; and stabilizer of China, a
nation for which he had little respect. Roosevelt had backed Japan in its war with
Russia and in 1905 had mediated the peace.
Roosevelt had hoped to arrange a balance of power between Russia and Japan after
the war, but the Japanese victory was so decisive and other events in Japanese-
American relations so important that he gave up on the Open Door in China, especially
in Manchuria, which the Japanese began to close after 1905. Because of the need to
protect the Philippines, which Roosevelt believed was the "heel of Achilles" of the
United States, and the war scare that resulted from the Japanese immigration crisis,
Roosevelt accepted Japanese expansion on the mainland of Asia. He came to feel that
the Open Door was not worth war with Japan. The United States should do what it could
to preserve interests in China, but should recognize Japan as the dominant power on
the Asian mainland. In short, he gave a green light to Japanese expansion. One of the
best expressions of this belief appeared in a letter to Knox on 8 February1909, shortly
before Roosevelt left office. He noted that Japanese-American relations were of "great
and permanent importance." While immigration to the United States had to stop, the
United States should "show all possible courtesy and consideration." The Taft
administration had to understand that "Japan is vitally interested in China and on the
Asiatic mainland." Since the Pacific coast of the United States was defenseless and "we
have no army to hold or reconquer the Philippines and Hawaii," the country had to avoid
war. Roosevelt felt that American interests in China were insignificant in American Far
Eastern policy.
Even as his administration came to an end, forces were at work that would change
Roosevelt's policy in East Asia. In 1908 Root had established the State Department's
first geographic unit, the Division of Far Eastern Affairs. Headed by Willard Straight, the
division opposed Japanese expansion in China, and this opposition was to dominate the
division in the years between 1909 and 1941.
Roosevelt's East Asian policy thus was reversed. With urging from the State
Department and because of a combination of motives—economic expansion, suspicion
of Japan, faith in the future of China—the Taft administration decided to challenge
Japan in China. During the Taft years, the Open Door Notes, which had frequently
changed in meaning after 1900, assumed new importance in the Far Eastern policy of
the United States.
In Far Eastern policy, department officials now proved important. Taft and Knox did not
need convincing. Both believed China was the country of the future in the Far East and
that if the United States desired influence with that emerging nation it had to increase its
financial interests there. If the president and secretary of state had any doubts about
such policy, they were overcome by State Department advice. Huntington Wilson, who
had served in Tokyo, and Straight, who had been consul in Mukden, Manchuria, were
both hostile to Japanese ambitions in China. They had tried unsuccessfully in the last
days of the Roosevelt administration to enlarge the Open Door to include investment
and trade. With Taft and Knox they had more success.
The Taft administration came to see investment in railway development and loans to the
Chinese government as the means to increase influence in China. Knox demanded that
American financiers be given the opportunity to join the
British, French, and German consortium in lending money to China to finance railroad
construction in the YangtzeValley, the so-called Hukuang Railway loan. When the
demand met with European hostility, Taft appealed to the Chinese head of state: "I have
an intense personal interest in making the use of American capital in the development
of China an instrument for the promotion of the welfare of China, and an increase in her
material prosperity without entanglements or creating embarrassments affecting the
growth of her independent political power and the preservation of her territorial
integrity." The State Department persuaded a group of investors to assume part of the
loan. Knox grudgingly got his way, but only at the price of irritation in Britain, France,
and Germany. In the long run, this project was a failure.
From the Hukuang loan the State Department turned to Manchuria. The result was the
Knox neutralization policy, which more than any other proposal epitomized dollar
diplomacy in China. In the fall of 1909, Knox proposed that American, Japanese, and
European bankers lend China enough money to repurchase the Chinese Eastern
Railroad, held by Russia, and the South Manchurian Railroad, in the possession of
Japan. Manchuria would be neutralized and open to all commercial activities.
Washington feared that southern Manchuria was being closed to non-Japanese
influences. Knox realized that the Japanese would be difficult, but he thought the
proposal would be supported in Europe. Britain, France, and Germany eventually
decided to defer to the wishes of Japan and Russia, and in January 1910 the latter two
nations rejected the plan. Only the Chinese showed interest, but that soon turned to
concern when Russia and Japan agreed in July to cooperate in guaranteeing the status
quo in Manchuria. Knox had only succeeded in driving the former enemies into a virtual
alliance to prevent American interference in Manchuria. A companion proposal by
Straight, who had left the State Department to head the American consortium planning
a railroad that ran parallel to portions of the South Manchuria line, met a similar fate.
By the fall of 1910, Knox recognized defeat in his railroad plans for Manchuria.
Throughout the rest of his term as secretary of state, he continued to work for increased
American involvement in China, but through plans that did not contest the Japanese
and Russians in Manchuria. He became involved in plans for a multinational currency
reform loan, but the Chinese revolution that began in 1911 put an end to that scheme.
The government that overthrew the Manchu then negotiated with a six-power
consortium for a reorganization loan. Negotiations dragged on until the Taft
administration left office.
Dollar diplomacy in China stimulated international controversy. The Taft-Knox policy
succeeded in causing distress, irritation, and even anger in London, Paris, Berlin, St.
Petersburg, and Tokyo. Knox's clumsy attempts to help China only weakened the
empire, since Japan and Russia agreed on a policy. The policy aroused controversy in
the United States, where bankers were reluctant to participate. Roosevelt opposed the
policy, writing to Taft in late 1910 that the Open Door in China could only be maintained
by general diplomatic agreement. He noted that "as has been proved by the whole
history of Manchuria, alike under Russia and under Japan, the 'Open Door' policy, as a
matter of fact, completely disappears as soon as a powerful nation determines to
disregard it, and is willing to run the risk of war." Roosevelt was convinced that Japan
was one such nation, and that the United States ought not to try to bluff the Japanese
on the mainland of Asia, especially since Americans would never agree to fight a war
there.
Wilson later withdrew government support from American investors planning the
reorganization loan, charging that the loan violated Chinese sovereignty and threatened
China with intervention. The American investors backed out of the loan, and the last of
the dollar diplomacy schemes came to an end. In the long run, Wilson reversed his
position, approving participation in a consortium in 1918. But Japan remained the
dominant power in China until World War II, and Roosevelt's policy seemed valid in
retrospect. Taft and Knox failed in their goal—to dislodge Japan from the Asian
mainland.
There were other areas to which the Taft administration tried to apply dollar diplomacy,
such as in Turkey. Breaking sharply with the traditional American policy toward the
Ottoman Empire, which centered on protecting the rights of American citizens, the Taft
administration attempted to share in the mining, irrigation, and railroad concessions
then being negotiated by the Turkish government. Taft hoped that the United States
would obtain a larger share of the commerce of the Near East. He was to be
disappointed. The United States found the European powers too entrenched, and dollar
diplomacy failed in Turkey. But Central America and China were the most spectacular
examples of the doctrine.
The controversy over dollar diplomacy lasted well after 1913. Generally recognized by
students of international relations as a failure, dollar diplomacy has engendered
controversy concerning its motives and the people responsible for carrying it out. Some
writers have argued that the policy was primarily economic, while others have
contended that it was dominated by strategy, especially in Latin America. Others have
defended the desire of the Taft administration to "do good" in Latin America and Asia, in
some cases noting that its failure was probably owing more to diplomatic bumbling than
imperialistic urges. The most recent writings of scholars have additionally argued that
the logic of imperialism undermined the logic of "dollars for bullets," which ended up
relying on military intervention to protect the interests of businesses and individual
investors. In effect, dollar diplomacy created, rather than mitigated against, havoc. The
most balanced account of dollar diplomacy, that of the historians Walter and Marie
Scholes, has combined these motives and also noted that Taft's diplomacy anticipated
U.S. foreign policy after World War II. Taft and Knox chose private capital as their
instrument, whereas President Harry S. Truman used public capital. In both instances,
the most important consideration was preservation of vital American interests abroad by
helping underdeveloped countries establish viable governments and integrating them
into the twentieth century.
Debate as to responsibility for the policy has taken two directions. Historians have
argued over the roles of Taft, Knox, the State Department, and American businessmen.
Straight has especially been the subject of debate. One account has convincingly
argued that Straight's role in the Far East has been exaggerated. The most reasonable
conclusion would seem that there was a common purpose among the advocates of
dollar diplomacy.
Another direction of the debate over dollar diplomacy has been whether it was only one
aspect of a continuous policy followed in the twentieth century by the United States—to
expand American economic opportunities abroad. It is clear that Taft's predecessor,
Theodore Roosevelt, and his successor, Woodrow Wilson, as well as the rest of the
American leaders in the twentieth century, supported the expansion of American
business, up to and including the Clinton administration's crafting of the NAFTA
agreement and approaching foreign relations with China on economic, rather than
human rights, terms, to the dismay of many Americans and their congressional
representatives. Indeed, the term "dollar diplomacy" was revived by the media to
describe the thrust of U.S. foreign relations during the 1990s. There has, however, been
no extensive scholarly investigation into the validity of using the policy of the Taft
administration to define the economic foreign policy being carried out by the United
States at the beginning of the twenty-first century. No president, other than Taft, has
made such a policy the principal goal of diplomacy. As a result, the term "dollar
diplomacy" remains synonymous with the diplomacy of 1909 to 1913.

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Diplomacy.html#ixzz5vBKWGn4p

DOCUMENT:

Dollar Diplomacy
William Howard Taft | 1912
George Grantham Bain Collection. President William Howard Taft introducing the Springfield Municipal Group.
1912. Public Domain Courtesy of the George Grantham Bain Collection.
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William Howard Taft > Dollar Diplomacy
The foreign relations of the United States actually and potentially affect the state of the
Union to a degree not widely realized and hardly surpassed by any other factor in the
welfare of the whole nation. The position of the United States in the moral, intellectual,
and material relations of the family of nations should be a matter of vital interest to
every patriotic citizen. The national prosperity and power impose upon us duties which
we cannot shirk if we are to be true to our ideals. The tremendous growth of the export
trade of the United States has already made that trade a very real factor in the
industrial and commercial prosperity of the country. With the development of our
industries, the foreign commerce of the United States must rapidly become a still more
essential factor in its economic welfare.

Whether we have a farseeing and wise diplomacy and are not recklessly plunged into
unnecessary wars, and whether our foreign policies are based upon an intelligent grasp
of present-day world conditions and a clear view of the potentialities of the future, or
are governed by a temporary and timid expediency or by narrow views befitting an
infant nation, are questions in the alternative consideration of which must convince any
thoughtful citizen that no department of national polity offers greater opportunity for
promoting the interests of the whole people on the one hand, or greater chance on the
other of permanent national injury, than that which deals with the foreign relations of
the United States.

The fundamental foreign policies of the United States should be raised high above the
conflict of partisanship and wholly dissociated from differences as to domestic policy. In
its foreign affairs the United States should present to the world a united front. The
intellectual, financial, and industrial interests of the country and the publicist, the wage
earner, the farmer, and citizen of whatever occupation must cooperate in a spirit of
high patriotism to promote that national solidarity which is indispensable to national
efficiency and to the attainment of national ideals. . . .

The diplomacy of the present administration has sought to respond to modern ideas of
commercial intercourse. This policy has been characterized as substituting dollars for
bullets. It is one that appeals alike to idealistic humanitarian sentiments, to the dictates
of sound policy and strategy, and to legitimate commercial aims. It is an effort frankly
directed to the increase of American trade upon the axiomatic principle that the
government of the United States shall extend all proper support to every legitimate and
beneficial American enterprise abroad.

How great have been the results of this diplomacy, coupled with the maximum and
minimum provision of the Tariff Law, will be seen by some consideration of the
wonderful increase in the export trade of the United States. Because modern diplomacy
is commercial, there has been a disposition in some quarters to attribute to it none but
materialistic aims. How strikingly erroneous is such an impression may be seen from a
study of the results by which the diplomacy of the United States can be judged.

In the field of work toward the ideals of peace, this government negotiated, but to my
regret was unable to consummate, two arbitration treaties which set the highest mark
of the aspiration of nations toward the substitution of arbitration and reason for war in
the settlement of international disputes. Through the efforts of American diplomacy,
several wars have been prevented or ended. I refer to the successful tripartite
mediation of the Argentine Republic, Brazil, and the United States between Peru and
Ecuador; the bringing of the boundary dispute between Panama and Costa Rica to
peaceful arbitration; the staying of warlike preparations when Haiti and the Dominican
Republic were on the verge of hostilities; the stopping of a war in Nicaragua; the
halting of internecine strife in Honduras.

The government of the United States was thanked for its influence toward the
restoration of amicable relations between the Argentine Republic and Bolivia. The
diplomacy of the United States is active in seeking to assuage the remaining ill feeling
between this country and the Republic of Colombia. In the recent civil war in China, the
United States successfully joined the other interested powers in urging an early
cessation of hostilities. An agreement has been reached between the governments of
Chile and Peru whereby the celebrated Tacna-Arica dispute, which has so long
embittered international relations on the west coast of South America, has at last been
adjusted. Simultaneously came the news that the boundary dispute between Peru and
Ecuador had entered upon a stage of amicable settlement.

The position of the United States in reference to the Tacna-Arica dispute between Chile
and Peru has been one of nonintervention, but one of friendly influence and pacific
counsel throughout the period during which the dispute in question has been the
subject of interchange of views between this government and the two governments
immediately concerned. In the general easing of international tension on the west coast
of South America, the tripartite mediation, to which I have referred, has been a most
potent and beneficent factor.

In China the policy of encouraging financial investment to enable that country to help
itself has had the result of giving new life and practical application to the open door
policy. The consistent purpose of the present administration has been to encourage the
use of American capital in the development of China by the promotion of those
essential reforms to which China is pledged by treaties with the United States and other
powers. The hypothecation to foreign bankers in connection with certain industrial
enterprises, such as the Hukuang railways, of the national revenues upon which these
reforms depended, led the Department of State, early in the administration, to demand
for American citizens participation in such enterprises, in order that the United States
might have equal rights and an equal voice in all questions pertaining to the disposition
of the public revenues concerned.

The same policy of promoting international accord among the powers having similar
treaty rights as ourselves in the matters of reform, which could not be put into practical
effect without the common consent of all, was likewise adopted in the case of the loan
desired by China for the reform of its currency. The principle of international
cooperation in matters of common interest upon which our policy had already been
based in all of the above instances has admittedly been a great factor in that concert of
the powers which has been so happily conspicuous during the perilous period of
transition through which the great Chinese nation has been passing.

In Central America the aim has been to help such countries as Nicaragua and Honduras
to help themselves. They are the immediate beneficiaries. The national benefit to the
United States is twofold. First, it is obvious that the Monroe Doctrine is more vital in the
neighborhood of the Panama Canal and the zone of the Caribbean than anywhere else.
There, too, the maintenance of that doctrine falls most heavily upon the United States.
It is therefore essential that the countries within that sphere shall be removed from the
jeopardy involved by heavy foreign debt and chaotic national finances and from the
ever present danger of international complications due to disorder at home. Hence, the
United States has been glad to encourage and support American bankers who were
willing to lend a helping hand to the financial rehabilitation of such countries because
this financial rehabilitation and the protection of their customhouses from being the
prey of would-be dictators would remove at one stroke the menace of foreign creditors
and the menace of revolutionary disorder.

The second advantage to the United States is one affecting chiefly all the Southern and
Gulf ports and the business and industry of the South. The republics of Central America
and the Caribbean possess great natural wealth. They need only a measure of stability
and the means of financial regeneration to enter upon an era of peace and prosperity,
bringing profit and happiness to themselves and at the same time creating conditions
sure to lead to a flourishing interchange of trade with this country.

I wish to call your especial attention to the recent occurrences in Nicaragua, for I
believe the terrible events recorded there during the revolution of the past summer —
the useless loss of life, the devastation of property, the bombardment of defenseless
cities, the killing and wounding of women and children, the torturing of noncombatants,
to exact contributions, and the suffering of thousands of human beings — might have
been averted had the Department of State, through approval of the loan convention by
the Senate, been permitted to carry out its now well-developed policy of encouraging
the extending of financial aid to weak Central American states, with the primary objects
of avoiding just such revolutions by assisting those republics to rehabilitate their
finances, to establish their currency on a stable basis, to remove the customhouses
from the danger of revolutions by arranging for their secure administration, and to
establish reliable banks.

During this last revolution in Nicaragua, the government of that republic having
admitted its inability to protect American life and property against acts of sheer
lawlessness on the part of the malcontents, and having requested this government to
assume that office, it became necessary to land over 2,000 Marines and Bluejackets in
Nicaragua. Owing to their presence the constituted government of Nicaragua was free
to devote its attention wholly to its internal troubles, and was thus enabled to stamp
out the rebellion in a short space of time. When the Red Cross supplies sent to Granada
had been exhausted, 8,000 persons having been given food in one day upon the arrival
of the American forces, our men supplied other unfortunate, needy Nicaraguans from
their own haversacks.

I wish to congratulate the officers and men of the United States Navy and Marine Corps
who took part in reestablishing order in Nicaragua upon their splendid conduct, and to
record with sorrow the death of seven American Marines and Bluejackets. Since the
reestablishment of peace and order, elections have been held amid conditions of quiet
and tranquillity. Nearly all the American Marines have now been withdrawn. The
country should soon be on the road to recovery. The only apparent danger now
threatening Nicaragua arises from the shortage of funds. Although American bankers
have already rendered assistance, they may naturally be loath to advance a loan
adequate to set the country upon its feet without the support of some such convention
as that of June 1911, upon which the Senate has not yet acted. . . .

It is not possible to make to the Congress a communication upon the present foreign
relations of the United States so detailed as to convey an adequate impression of the
enormous increase in the importance and activities of those relations. If this
government is really to preserve to the American people that free opportunity in foreign
markets which will soon be indispensable to our prosperity, even greater efforts must
be made. Otherwise the American merchant, manufacturer, and exporter will find many
a field in which American trade should logically predominate preempted through the
more energetic efforts of other governments and other commercial nations.

There are many ways in which, through hearty cooperation, the legislative and
executive branches of this government can do much. The absolute essential is the spirit
of united effort and singleness of purpose. I will allude only to a very few specific
examples of action which ought then to result.

America cannot take its proper place in the most important fields for its commercial
activity and enterprise unless we have a Merchant Marine. American commerce and
enterprise cannot be effectively fostered in those fields unless we have good American
banks in the countries referred to. We need American newspapers in those countries
and proper means for public information about them.

We need to assume the permanency of a trained foreign service. We need legislation

enabling the members of the foreign service to be systematically brought in direct
contact with the industrial, manufacturing, and exporting interests of this country in
order that American businessmen may enter the foreign field with a clear perception of
the exact conditions to be dealt with and the officers themselves may prosecute their
work with a clear idea of what American industrial and manufacturing interests require.
Congress should fully realize the conditions which obtain in the world as we find
ourselves at the threshold of our middle age as a nation. We have emerged full grown
as a peer in the great concourse of nations. We have passed through various formative
periods. We have been self-centered in the struggle to develop our domestic resources
and deal with our domestic questions. The nation is now too mature to continue in its
foreign relations those temporary expedients natural to a people to whom domestic
affairs are the sole concern.

In the past, our diplomacy has often consisted, in normal times, in a mere assertion of
the right to international existence. We are now in a larger relation with broader rights
of our own and obligations to others than ourselves. A number of great guiding
principles were laid down early in the history of this government. The recent task of our
diplomacy has been to adjust those principles to the conditions of today, to develop
their corollaries, to find practical applications of the old principles expanded to meet
new situations. Thus are being evolved bases upon which can rest the superstructure of
policies which must grow with the destined progress of this nation.

The successful conduct of our foreign relations demands a broad and a modern view.
We cannot meet new questions nor build for the future if we confine ourselves to
outworn dogmas of the past and to the perspective appropriate at our emergence from
colonial times and conditions. The opening of the Panama Canal will mark a new era in
our international life and create new and worldwide conditions which, with their vast
correlations and consequences, will obtain for hundreds of years to come. We must not
wait for events to overtake us unawares. With continuity of purpose we must deal with
the problems of our external relations by a diplomacy modern, resourceful,
magnanimous, and fittingly expressive of the high ideals of a great nation.

Foreign Affairs under

Taft: Dollar Diplomacy
The term “Dollar Diplomacy" was applied by critics to the activist foreign policy of William Howard
Taft. Late in his administration, the president described his actions as “substituting dollars for
bullets." He went to great lengths — even resorting to bullets — to help develop American
business interests in foreign areas. Philander C. Knox, a wealthy corporation lawyer, served as
secretary of state and authored much of the Taft policy.
The Taft administration attempted to address two vital concerns:
1. In Latin America, Taft sought to protect the approaches to the Panama Canal
2. In the Far East, he attempted to safeguard the territorial integrity of China and promote
the Open Door policy.
However, the greatest diplomatic success that Taft enjoyed was settling several nettlesome North
American issues .
---- Selected Quotes ----
Quotes regarding Foreign Affairs under Taft: Dollar Diplomacy.
By William Howard Taft
The diplomacy of the present administration has sought to respond to modern ideas of commercial
intercourse. This policy has been characterized as substituting dollars for bullets. It is one that
appeals alike to idealistic humanitarian sentiments, to the dictates of sound policy and strategy,
and to legitimate commercial aims.
1912 State of the Union address