Dollar diplomacy of the United States—particularly during President William Howard Taft‘s term— was a form of American foreign policy to further its aims in Latin America and East Asia through use of its economic power by guaranteeing loans made to foreign countries. Historian Thomas A. Bailey argues that dollar diplomacy was nothing new, as the use of diplomacy to promote commercial interest dates from the early years of the Republic. However, under Taft, the State Department was more active than ever in encouraging and supporting American bankers and industrialists in securing new opportunities abroad. Bailey finds that dollar diplomacy was designed to make both people in foreign lands and the American investors prosper. The term was originally coined by previous President Theodore Roosevelt, who did not want to intervene between Taft and Taft‘s secretary of state.
The concept is relevant to both Liberia, where American loans were given in 1913, and Latin America. Latin Americans tend to use the term “dollar diplomacy” disparagingly to show their disapproval of the role that the U.S. government and U.S. corporations have played in using economic, diplomatic and military power to open up foreign markets.
In the Americas
The outgoing President Theodore Roosevelt laid the foundation for this approach in 1904 with his Roosevelt Corollary to the Monroe Doctrine (under which United States Marines were frequently sent to Central America) maintaining that if any nation in the Western Hemisphere appeared politically and financially unstable so as to be vulnerable to European control, the United States had the right and obligation to intervene. Taft continued and expanded the policy, starting in Central America, where he justified it as a means of protecting the Panama Canal. In March 1909, he attempted unsuccessfully to establish control over Honduras by buying up its debt to British bankers.
Another dangerous new trouble spot was the revolution-riddled Caribbean—now largely dominated by U.S. interests. Hoping to head off trouble, Washington urged U.S. bankers to pump dollars into the financial vacuum in Honduras and Haiti to keep out foreign funds. The United States would not permit foreign nations to intervene, and consequently felt obligated to prevent economic and political instability. The State Department persuaded four U.S. banks to refinance Haiti’s national debt, setting the stage for further intervention in the future.
From 1909 to 1913, President William Howard Taft and Secretary of State Philander C. Knox followed a foreign policy characterized as “dollar diplomacy”. Taft shared the view held by Knox (a corporate lawyer who had founded the giant conglomerate U.S. Steel) that the goal of diplomacy should be to create stability abroad, and through this stability promote American commercial interests. Knox felt that not only was the goal of diplomacy to improve financial opportunities, but also to use private capital to further U.S. interests overseas. “Dollar diplomacy” was evident in extensive U.S. interventions in Venezuela, Cuba and Central America, especially in measures undertaken to safeguard American financial interests and from the United States government in the region. In China, Knox secured the entry of an American banking conglomerate, headed by J.P. Morgan, into a European-financed consortium financing the construction of a railway from Huguang to Canton. In spite of successes, “dollar diplomacy” failed to counteract economic instability and the tide of revolution in places like Mexico, the Dominican Republic, Nicaragua, and China.
Dollar diplomacy, known as “[a] policy aimed at furthering the interests of the United States abroad by encouraging the investment of U.S. capital in foreign countries”, was initiated by President William Taft. The United States felt obligated, through the dollar diplomacy, to uphold economic and political stability. Taft‘s dollar diplomacy not only allowed the United States to gain financially from countries, but also restrained other foreign countries from reaping any sort of financial gain. Consequently, when the United States benefited from other countries, other world powers could not reap those same benefits. Overall the “dollar diplomacy” was to encourage and protect trade within Latin America and Asia.
“Taft maintained an activist approach to foreign policy. On one hand, he was the initiator of what became known as dollar diplomacy, in which the United States used its military might to promote American business interests abroad. Taft, defended his dollar diplomacy as an extension of the Monroe Doctrine. Taft was a major supporter of arbitration as the most viable method of settling international disputes” Quickly becoming a world power, America sought to further her influence abroad. President Taft realized that by instituting dollar diplomacy, it would be pernicious to the financial gain of other countries. Thus the United States would benefit greatly.