President William Howard Taft and “Dollar Diplomacy”

The following quote summarizes President Taft’s view on foreign policy:

“The diplomacy of the present administration…has been characterized as substituting dollars for bullets. It is the one that appeals alike to idealistic humanitarian sentiments, to the dictates of sound policy and strategy, and to legitimate commercial aims.”

President William Howard Taft, December 3, 1912

General Points behind Taft’s Foreign Policy:

Taft’s approach to foreign policy between 1908 and 1912 reflected his strong judicial temperament and his life-long aspiration to become a justice of the Supreme Court. Temperamentally, unsuited to be a dynamic leader like Roosevelt, Taft knew that he would not be able to “beat the drum, herd emperors, and the destinies of continents with one grand flourish.” Not surprisingly, Roosevelt’s “Big Stick” gathered cobwebs during his administration.

Unlike Roosevelt, Taft did not try to be his own Secretary of State. Instead, he chose Philander C. Knox, a capable corporation lawyer, thoroughly, sympathetic with the goals of big business. Regarding himself, something of a “prime minister,” he reorganized the state department to pursue a “spirited commercial foreign policy.”

Secretary Knox eagerly embraced President Taft’s view that the United States should take it is rightfully place in the world, not by bullets, but as a major power reflecting the commercial and financial world. Indeed, Taft’s preoccupation with investments abroad prompted many to remark that “Dollar Diplomacy,” the almighty dollar, supplanted Roosevelt’s “Big Stick.”

To be clear, Dollar Diplomacy was nothing new. The use of foreign policy to protect and promote American commercial interests dates from the beginning of the republic. However, Taft-Knox administration made the unmistakable point of emphasizing the “traveling salesman” concept that Washington would aggressively encourage and support American bankers and industrialists in securing new opportunities for profit in foreign countries. Economic imperialism or dollar diplomacy was designed to prosper both the exploited people and the American investors.

Taft and Knox added still another theme to dollar diplomacy. They stressed not so much the protection of the American dollar already invested abroad as the employment of the dollar to promote American national polices. Those that supported dollar diplomacy strong believed economic penetration of foreign lands was often the “foot in the door” for political domination.

The instrument for this handmaiden of American foreign policy was the encouragement of American bankers to pump their money into sensitive areas, notably the Caribbean and China, to forestall or replace foreign capital.

Pumping Dollars into China:

At first American bankers demonstrated a strong reluctance to risk money in capital-hungry China. Such a conservative attitude distressed Willard Straight, a dynamic U.S. consul general at Manchuria from 1906 to 1908. He expressed mounting concern the economic penetration of Manchuria by the Japanese, and concluded the U.S. lacked influence in the Far East due to the small amount of money Americans had invested in that region. If the U.S. had any hope of playing a decisive role in preserving the integrity of China and the Open Door, its bankers would have to invest large sums of money, particularly in Manchuria.

Under the Taft administration, he served in the State Department as Acting Chief of the Division of Far Eastern Affairs (1908-1909) and exercised a strong influence pushing dollar diplomacy, forcing American capital, by diplomatic pressure into a region of the world where it would not do so, of its own accord.

Examples of Attempts at Dollar Diplomacy:

In 1909, the State Department backed an American banking group’s “push” into the Hukuang Railway project, a consortium of British, French, and German bankers’ proposal to build a railway in central and southern China. However, by 1911American, capitalists showed only erratic interest in their responsibilities, and little railroad building was achieved less done to preserve the territorial integrity of China.

By 1097, the Japanese and Russians had divided China’s Manchuria into southern and northern economic spheres of influence. The Russians enjoyed a dominant position in Northern Manchuria, with their key Chinese Eastern Railway and the Japanese were firmly entrenched in southern Manchuria, with their vital South Manchuria Railway.

Secretary of State Knox viewed this development with great concern for the Open Door policy. He set about a scheme to use American dollars to block this ominous penetration. He introduced the Manchurian Railroad proposal in late 1909 to interested powers. In short, the proposal called for American and European banking groups to lend the Chinese government huge sums of money, they would use to regain full control of Manchuria by buying the various railroads. Buying the railroads, Secretary Knox hoped would “smoke the Japanese out from her dominant position” she had acquired in the Russo-Japanese war (1904-1905) in Manchuria. The gambit failed. Both the Japanese and the Russians saw through Knox the thinly veiled scheme. In the end, it weakened the territorial integrity of China, and drove Japan and Russia closer together.

However, out of office Roosevelt still thrashed Secretary Knox’s Far Eastern policy of “bluff and back down.” By the election of Woodrow Wilson in 1912, “dollar diplomacy” on both continents had been rejected and denounced.

Woodrow Wilson’s Missionary Diplomacy:

Wilson’s actions in Mexico reflected a rejection of previous Presidents Roosevelt and Taft’s position to stay out of Mexican affairs as long as it did not affect America or business interests. The Mexican Revolution allowed him to show the Mexican people how to establish a moral and righteous government.

The following quote expresses Wilson’s idealism in foreign policy:

“We dare not turn from the principle that morality and not expediency is the thing that must guide us and that we will never condone iniquity because it is the most convenient thing to do so…It is a very perilous thing to determine the foreign policy of a nation in terms of material interest. It is not only unfair to those with whom you are dealing, but it is degrading as regards your own actions.”

Republicans and the business class in America scorned Wilson’s foreign policy. Investors decried that every day the U.S. intervened in Mexican affairs America lost money, not to mention the loss of lives.

Even more ominous was Congress’ growing demand for intervention the deeper Wilson got involved in the Mexican affairs. Some, like the Senator Albert Fall of Mexico and House Representative Otis Wingo of Arkansas, wanted to see the Mexican border pushed to the Panama Canal.

One Hearst newspaper declared,

“Oh, say, can you see by the dawn’s early light

Any possible way for avoiding a fight? The Star-Spangled Banner, oh, long may it flap,

While we’re kicked by the Greaser and slapped by the Jap!”

Wilson and World War I:

At the outset of the war most Americans seemed to be grateful, their forebears had emigrated from Europe and escaped, what they thought was “old world lunacy.” Notwithstanding this, and Wilson’s call for Americans to be neutral both in thought and deeds, the fact that most Americans came from European countries involved in the war, ultimately made neutrality impossible. Wilson’s admiration of England and its history affected the way he interpreted the Central Powers actions under international law—generally supporting the Allies.

Wilson’s refusal to compromise with Senate Republicans on the Versailles Treaty and the League of Nations led to the embarrassment that America never signed the treaty and joined the League of Nations. This has led many historians to declare it was the “supreme act of infanticide.” The end of the war with an armistice and the failure of America to ratify the treaty and join the League of Nations utterly destroyed Americans’ belief in the Wilsonian declaration the war was to make the world safe for democracy. Rumors that Lenin’s vow to spread Communism had reached American shores created the “Red Scare” between l919 and 1921.