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Definition: dollar diplomacy from The Hutchinson Unabridged Encyclopedia with Atlas and Weather Guide

Disparaging description of US foreign policy in the early 20th century. The USA sought political influence over foreign governments (China 1909 and 1912; Haiti 1910; Nicaragua and Honduras 1911; Dominican Republic 1916) by encouraging American financiers to make loans to countries whose indebtedness could then be used to promote US interests.

Dollar diplomacy sometimes resulted in US military intervention (such as marines in Nicaragua 1912–25) to prop up client regimes. The term is particularly associated with the presidency of William Taft. In the latter 20th century similar policies are usually described as economic imperialism.

Summary Article: Dollar Diplomacy
from The American Economy: A Historical Encyclopedia

Term used to describe certain elements of U.S. foreign policy during the presidency of William Howard Taft (1909-1913).

President William Howard Taft, like his predecessor Theodore Roosevelt, sought to increase America’s influence as a world power. Part of his foreign policy strategy involved extending American financial investments and institutions into less-developed regions. To accomplish these goals, the Taft administration concentrated on promoting and protecting American corporate interests in Central America and the Far East. Theoretically, by “substituting dollars for bullets,” as Taft phrased it, both the United States and the underdeveloped nations would benefit. U.S. trade would increase while the smaller countries would enter a new era of political stability and improved social conditions. Taft chose Philander C. Knox as his secretary of state and charged him with implementing the policy of dollar diplomacy. Knox, a wealthy conservative corporate lawyer who had represented the Carnegie Steel Corporation, remained sympathetic to the needs and goals of big business.

Taft and Knox believed that the best way to control Central American countries involved taking over their customs houses where import duties are collected and arranging for the countries to repay European debts through loans from American businesses. The United States introduced financing schemes in Honduras, Guatemala, and Haiti. Nicaragua provided the clearest example of the practical value of dollar diplomacy. Taft and Knox believed the small nation had great strategic importance because of its proximity to the Panama Canal. In 1907, the United States helped topple longtime Nicaraguan dictator Jose Santos Zelaya, who had refused to cooperate with the administration’s plans to establish a neutral Honduras. The United States subsequently supported Adolfo Diaz as the head of the Nicaraguan government, made loans to the new regime, and seized control of the country’s customs houses. The situation left Nicaragua a virtual U.S. protectorate and generated resentment among the Nicaraguan people. The American policy failed to create stability in the country, and sporadic violence led Taft to send in troops that would remain in Nicaragua for years.

Under pressure from American bankers, Taft and Knox also sought to implement dollar diplomacy in China. There they hoped to dilute Japanese and Russian influence in Manchuria, strengthening both the Open Door Policy (which called for the territorial integration of China and the establishment of free trade in China) and the weak Chinese government. Knox worked to include the United States in a consortium of western powers formed to construct railroads in Manchuria. When English, French, and German bankers reluctantly agreed with the plan, Knox carried it a step further by trying to exclude the Japanese completely from any role in the enterprise. The Japanese responded by forming a loose alliance with Russia, and the railroad project quickly collapsed in 1910.

Taft abandoned dollar diplomacy during the final year of his administration and, in 1913, his successor, Woodrow Wilson, publicly repudiated the policy. Taft’s economic interventionism had been an outright failure in China and created ill will and social turmoil in Central America that would last for decades. Today, the term dollar diplomacy has negative connotations and is used to refer to the needless manipulation of foreign affairs for economic gain.

See also: Volume Two: Foreign Policy.

  • Coletta, Paola E. The Presidency of William Howard Taft. Lawrence: University Press of Kansas, 1973.
  • Schoultz, Lars. Beneath the United States: A History of U.S. Policy toward Latin America. Cambridge, MA: Harvard University Press, 1998.
  • Ben Wynne
    Copyright 2011 by ABC-CLIO, LLC

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