William Howard Taft's Dollar Diplomacy: Its Rise and Fall in Foreign Policy

Author: Notre Dame International Security Center

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Though the proverb “speak softly and carry a big stick” was popularized by President Theodore Roosevelt—leading to the rise of big stick diplomacy—he recognized the power economics carried in diplomacy. In the Dominican Republic, Roosevelt struck a deal with President Carlos Morales which saw the U.S. help the Dominicans out of a debt crisis in exchange for temporary control of the country’s customs house. This stabilized the country’s economy and served as inspiration for Roosevelt’s successor, William Howard Taft, to gravitate toward dollar diplomacy as his primary tool of foreign policy. This article will explain this diplomatic method and why it was ultimately doomed to fail. 

Substituting Dollars for Bullets? 

While the underlying concept supporting dollar diplomacy predated both Roosevelt and Taft, it became especially prevalent during the latter’s time in office. He summarized the policy in the 1912 State of the Union Address, in which he said: 

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. 

To Taft and his Secretary of State, Philander C. Knox, the goal of dollar diplomacy was to ensure stability and maintain order abroad, which would also promote American commercial interests. 

Dollar Diplomacy in Practice 

Though the Banana Wars were ongoing in Latin America, Taft sought to use America’s vast economic wealth and resources to resolve diplomatic issues with trade, rather than with conflict. For context, tycoons like John Rockefeller and JP Morgan were rising industrialists in this era of American history, so the U.S. had the resources necessary to pay for this strategy. In fact, as Walter and Marie Scholes wrote in their book The Foreign Policies of the Taft Administration, JP Morgan himself helped finance the construction of what would become known as Guangzhou-Hankou railway—a 30-mile connection in China. 

The Taft administration focused on two key zones: 1) Central America, where several countries owed steep debts to European countries, and 2) Asia, where Taft wanted to help China resist the rise of Japan and maintain the existing balance of power.  

Why Did the Policy Fail? 

In retrospect, dollar diplomacy’s failure in both zones seems inevitable. 

In Central America, the policy did little to relieve countries of their debt—at best, it reassigned that debt to the United States—and spurred several nationalist movements among those who were resentful of the interference. Despite Taft’s intentions, this led to more conflict and “Banana Wars” and U.S.-backed coup d'états in the region, particularly during the Cold War and the Truman Doctrine of containing communism. 

Meanwhile, in Asia, dollar diplomacy sowed the seeds of mistrust. Pre-Soviet Russia and Japan were suspicious of U.S. actions in China—seeing them as little more than an imperialist foray into Asia. Additionally, the effort to mediate the relationship between China and Japan led to tensions between the United States. Dollar diplomacy also failed to maintain the existing balance of power, as Imperial Japan responded by expanding its reach throughout Southeast Asia. Of course, these tensions culminated in World War II.   

In the 1912 Presidential Election, William Howard Taft lost in a landslide to Woodrow Wilson. Upon inauguration in 1913, Wilson ended the policy of dollar diplomacy. Taft would later be appointed to the Supreme Court; to date, he’s the only person to serve as both President of the Executive Branch and Chief Justice of the Judicial Branch. 

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