Dollar Diplomacy
What is it?
Dollar diplomacy is a form of diplomacy that involves investing in foreign nations to stabilize them. The term is often used specifically to represent efforts conducted in self-interest by the United States; dollar diplomacy in this sense of the word is diplomacy that will benefit the interests of the United States.
This approach to diplomacy has been practiced for a very long time by a number of nations, not just the United States.
It is this practice that China is now using on the United States and other countries world wide.
This term became popularized during the term of President Taft, who notably used dollar diplomacy to “send dollars instead of guns” to areas in which the United States had an interest.
The government did things like acquiring debt held by poor nations and investing in infrastructure in countries that could not afford it. Just like China is currently doing in Africa, South America, and the Caribbean.
In exchange for this, the United States government expected certain concessions from the countries it was assisting.
Sometimes the United States used dollar diplomacy so that it could play a role in shaping regulatory policy in a way that would be beneficial for American companies.
This included pressuring companies to enact lax laws to protect workers, limiting taxation of foreign companies, and other activities.
Dollar diplomacy was also used to secure political power, as seen when the United States reserved the right to choose appointees to key political positions, and sometimes to outright appoint them.
Beneficiaries of dollar diplomacy were in a difficult position. These nations needed the financial assistance and benefited from the expertise, equipment, and funds American companies brought into their borders. Nations didn’t like being ordered around by the United States, however, and felt internal pressure as a result of the control exerted by the United States.
Some citizens of these countries protested, sometimes violently, and the history of dollar diplomacy in areas like Latin America and Southeast Asia played a role in military conflicts sparked by resentful citizens.
The United States argued that while the policy certainly had the effect of opening up foreign markets and creating a favorable business climate for American companies, which benefited the United States, it was also beneficial for recipients.
Dollar diplomacy created jobs, infrastructure, and security for some nations, and in fact the United States continues to invest in foreign allies for the purpose of helping them recover and stabilize after military conflicts, economic downturns, and political turmoil.
The focus today is less on self-interest, however, and more on helping allies and friends of the United States achieve political, economic, and social independence to create positive long term allies.
So how about a little history of US dollar diplomacy.
Let’s start with Hawaii.
The Kingdom of Hawaii was independent from 1810 until 1893 when the monarchy was overthrown by resident American businessmen.
It was then an independent republic from 1894 until 1898, under Sanford B. Dole, when it was annexed by the United States as a territory, becoming a state in 1959.
In 1887, King Kalākaua was forced to sign the 1887 Constitution of the Kingdom of Hawaii, which stripped the king of much of his authority.
There was a property qualification for voting, which disenfranchised most Hawaiians and immigrant laborers, and favored the wealthier white community. Resident whites were allowed to vote, but resident Hawaiians were excluded.
Because the 1887 Constitution was signed under threat of violence, it is known as the “Bayonet Constitution”. King Kalākaua, reduced to a figurehead, reigned until his death in 1891. His sister, Queen Liliʻuokalani, succeeded him on the throne. She was the last monarch of Hawaii.
In 1893, Queen Liliʻuokalani announced plans for a new constitution. The United States then sent in a company of US marines to maintain the peace thus assuring American businessmen would remain in power.
In January 1893, it was Queen Liliʻuokalani who was overthrown and replaced by American lawyer Sanford B. Dole who became President of the Republic in 1894.
After William McKinley won the presidential election in 1896, Hawaii’s annexation to the U.S. was again discussed. The previous president, Grover Cleveland, was a friend of Queen Liliʻuokalani. However, McKinley was open to persuasion by U.S. expansionists and by annexationists from Hawaii.
In 1900, Hawaii was granted self-governance and retained ʻIolani Palace as the territorial capitol building.
Despite several attempts to become a state, Hawaii remained a territory for sixty years.
Plantation owners and key capitalists, who maintained control through financial institutions, or “factors”, known as the “Big Five“, found territorial status convenient, enabling them to continue importing cheap foreign labor; such immigration was prohibited in various states.
In the 1950s the power of the plantation owners was finally broken by descendants of immigrant laborers. Because they were born in a U.S. territory, they were legal U.S. citizens.
The Hawaii Republican Party, strongly supported by plantation owners, was voted out of office. The Democratic Party of Hawaii dominated politics for 40 years. Eager to gain full voting rights, Hawaii’s residents actively campaigned for statehood.
In March 1959, Congress passed the Hawaii Admission Act and U.S. President Dwight D. Eisenhower signed it into law.
Next up, The Spanish American War.
On April 25, 1898 the United States declared war on Spain following the sinking of the Battleship Maine in Havana harbor on February 15, 1898.
The war ended with the signing of the Treaty of Paris on December 10, 1898. As a result, Spain lost its control over the remains of its overseas empire — Cuba, Puerto Rico, the Philippines Islands, Guam, and other islands.
Cuba was the first to initiate its own struggle for independence. During the years from 1868-1878, Cubans fought for autonomy from Spain. That war concluded with a treaty that was never enforced. In the 1890’s Cubans began to agitate once again for their freedom from Spain.
U.S. interest in purchasing Cuba had begun long before 1898. American sugar interests bought up large tracts of land in Cuba.
The U.S. had more than $50 million invested in Cuba and annual trade, mostly in sugar, was worth twice that much. Support for war had been growing in the United States, despite President Grover Cleveland‘s proclamation of neutrality on June 12, 1895.
But sentiment to enter the conflict grew in the United States when General Valeriano Weyler began implementing a policy of Reconcentration that moved the population into central locations guarded by Spanish troops and placed the entire country under martial law in February 1896.
By December 7, President Cleveland reversed himself declaring that the United States might intervene should Spain fail to end the crisis in Cuba.
President William McKinley, inaugurated on March 4, 1897, was even more anxious to become involved, particularly after the New York Journal published a copy of a letter from Spanish Foreign Minister Enrique Dupuy de Lôme criticizing the American President on February 9, 1898.
Events moved swiftly after the explosion aboard the U.S.S. Maine on February 15.
On March 9, Congress passed a law allocating fifty million dollars to build up military strength. On March 28, the U.S. Naval Court of Inquiry found that a mine blew up the Maine. On April 21 President McKinley ordeed a blockade of Cuba and four days later the U.S. declared war.
Following its declaration of war against Spain issued on April 25, 1898, the United States added the Teller Amendment asserting that it would not attempt to exercise control over Cuba.
Two days later Commodore George Dewey sailed from Hong Kong with Emilio Aguinaldo on board.
Fighting began in the Phillipines Islands at the Battle of Manila Bay on May 1 where Commodore George Dewey reportedly exclaimed, “You may fire when ready, Gridley,” and the Spanish fleet under Rear Admiral Patricio Montojo was destroyed.
However, Dewey did not have enough manpower to capture Manila so Aguinaldo’s guerrillas maintained their operations until 15,000 U.S. troops arrived at the end of July.
On the way, the cruiser Charleston stopped at Guam and accepted its surrender from its Spanish governor who was unaware his nation was at war.
Although a peace protocol was signed by the two belligerents on August 12, Commodore Dewey and Maj. Gen. Wesley Merritt, leader of the army troops, assaulted Manila the very next day, unaware that peace had been declared.
In late April, Andrew Summers Rowan made contact with Cuban General Calixto García who supplied him with maps, intelligence, and a core of rebel officers to coordinate U.S. efforts on the island.
The U.S. North Atlantic Squadron left Key West for Cuba on April 22 following the frightening news that the Spanish home fleet commanded by Admiral Pascual Cervera had left Cadiz and entered Santiago, having slipped by U.S. ships commanded by William T. Sampson and Winfield Scott Schley. They arrived in Cuba in late May.
War actually began for the U.S. in Cuba in June when the Marines captured Guantánamo Bay and 17,000 troops landed at Siboney and Daiquirí, east of Santiago de Cuba, the second largest city on the island.
At that time Spanish troops stationed on the island included 150,000 regulars and 40,000 irregulars and volunteers while rebels inside Cuba numbered as many as 50,000.
U.S. army strength at the time totaled 26,000, requiring the passage of the Mobilization Act of April 22 that allowed for an army of at first 125,000 volunteers (later increased to 200,000) and a regular army of 65,000.
On June 22, U.S. troops landed at Daiquiri where they were joined by Calixto García and about 5,000 revolutionaries.
U.S. troops attacked the San Juan heights on July 1, 1898. Dismounted troopers, including the African-American Ninth and Tenth cavalries and the Rough Riders commanded by Lt. Col. Theodore Roosevelt went up against Kettle Hill while the forces led by Brigadier General Jacob Kent charged up San Juan Hill and pushed Spanish troops further inland while inflicting 1,700 casualties.
While U.S. commanders were deciding on a further course of action, Admiral Cervera left port only to be defeated by Admiral Schley.
On July 16, the Spaniards agreed to the unconditional surrender of the 23,500 troops around the city.
A few days later, Major General Nelson Miles sailed from Guantánamo to Puerto Rico. His forces landed near Ponce and marched to San Juan with virtually no opposition.
Representatives of Spain and the United States signed a peace treaty in Paris on December 10, 1898, which established the independence of Cuba, ceded Puerto Rico and Guam to the United States, and allowed the victorious power to purchase the Philippines Islands from Spain for $20 million.
The war had cost the United States $250 million and 3,000 lives, of whom 90% had perished from infectious diseases.
The Platt Amendment, an amendment to a U.S. army appropriations bill, established the terms under which the United States would end its military occupation of Cuba (which had begun in 1898 during the Spanish-American War) and “leave the government and control of the island of Cuba to its people.”
While the amendment was named after Senator Orville Platt of Connecticut, it was drafted largely by Secretary of War Elihu Root.
The Platt Amendment laid down eight conditions to which the Cuban Government had to agree before the withdrawal of U.S. forces and the transfer of sovereignty would begin.
The Platt Amendment’s conditions prohibited the Cuban Government from entering into any international treaty that would compromise Cuban independence or allow foreign powers to use the island for military purposes.
The United States also reserved the right to intervene in Cuban affairs in order to defend Cuban independence and to maintain “a government adequate for the protection of life, property, and individual liberty.”
Other conditions of the Amendment demanded that the Cuban Government implement plans to improve sanitary conditions on the island, relinquish claims on the Isle of Pines, and agree to sell or lease territory for coaling and naval stations to the United States. (This clause ultimately led to the perpetual lease by the United States of Guantánamo Bay.)
Finally, the amendment required the Cuban Government to conclude a treaty with the United States that would make the Platt amendment legally binding, and the United States pressured the Cubans to incorporate the terms of the Platt Amendment in the Cuban constitution.
The rationale behind the Platt Amendment was straightforward. The United States Government had intervened in Cuba in order to safeguard its significant commercial interests on the island in the wake of Spain’s inability to preserve law and order.
As U.S. military occupation of the island was to end, the United States needed some method of maintaining a permanent presence and order.
However, anti-annexationists in Congress had incorporated the Teller Amendment in the 1898 war resolution authorizing President William McKinley to take action against Spain in the Spanish-American War.
This Teller Amendment committed the U.S. Government to granting Cuba its independence following the removal of Spanish forces.
By directly incorporating the requirements of the Platt Amendment into the Cuban constitution, the McKinley Administration was able to shape Cuban affairs without violating the Teller Amendment.
General Leonard Wood, commander of the U.S. occupation forces and military governor of Cuba, presented the terms of the Platt Amendment to the delegates of the Cuban Constitutional Convention in late 1900.
Although the Cuban delegates realized that the amendment significantly limited Cuban sovereignty, and originally refused to include it within their constitution, the U.S. Government promised them a trade treaty that would guarantee Cuban sugar exports access to the U.S. market. (Dollar Diplomacy)
After several failed attempts by the Cubans to reject or modify the terms of the Platt amendment, the Cuban Constitutional Convention finally succumbed to American pressure and ratified it on June 12, 1901, by a vote of 16 to 11.
The Platt Amendment remained in force until 1934 when both sides agreed to cancel the treaties that enforced it.
Now a a spinoff of the Spanish American War, the US entered the Philippine–American War an armed conflict between the United States and Filipino revolutionaries.
The conflict arose from the struggle of the First Philippine Republic to secure independence from the United States following the Spanish–American War. The war was a continuation of the Philippine struggle for independence that began in 1896 with the Philippine Revolution.
Fighting erupted between United States and Filipino revolutionary forces on February 4, 1899, and quickly escalated into the 1899 Second Battle of Manila.
On June 2, 1899, the First Philippine Republic officially declared war against the United States. The war officially ended on July 4, 1902.
However, some groups led by veterans of the revolution continued to battle the American forces. Among those leaders was General Macario Sacay, a veteran revolution member who assumed the presidency of the proclaimed “Tagalog Republic“, formed in 1902 after the capture of President Emilio Aguinaldo.
Other groups, continued hostilities in remote areas and islands until their final defeat a decade later on June 15, 1913.
The war and occupation by the U.S. would change the cultural landscape of the islands, as people dealt with an estimated 34,000 to 220,000 Filipino casualties (with more civilians dying from disease and hunger brought about by war), disestablishment of the Roman Catholic Church in the Philippines (as a “state Church” – as previously in Spain), and the introduction of the English language in the islands as the primary language of government, education, business, industrial and increasingly in future decades among families and educated individuals.
Under the 1902 “Philippine Organic Act“, passed by the United States Congress, Filipinos were initially given very limited self-government, including the right to vote for some elected officials such as an elected Philippine Assembly, but it was not until 14 years later with the 1916 Philippine Autonomy Act, (or “Jones Act”) passed by the United States Congress, now under Democratic 28th President, Woodrow Wilson, that the U.S. officially promised eventual independence, along with more Filipino control in the meantime over the Philippines.
The 1934 Philippine Independence Act created in the following year, 1935, the Commonwealth of the Philippines, a limited form of independence, and established a process ending in Philippine independence (originally scheduled for 1944, but interrupted and delayed by World War II.
Finally in 1946, following World War II and the Japanese Occupation of the Philippines, the United States granted independence through the Treaty of Manila concluded between the two governments and nations.
One final example of US Dollar Diplomacy and this is a dandy.
The Panama Canal
On June 19, 1902, the U.S. Senate voted in favor of building the canal through Panama. Within 6 months, Secretary of State John Hay signed a treaty with the Colombian Foreign Minister to build the new canal.
We offered Columbia $10 million and $250,000/year. The financial terms were unacceptable to Colombia’s congress, and it rejected the offer. Teddy Roosevelt called Columbia “The blackmailers of Bogata”.
President Roosevelt responded by dispatching U.S. warships to Panama City (on the Pacific) and Colón (on the Atlantic) in support of Panamanian independence.
Colombian troops were unable to negotiate the jungles of the Darien Strait and Panama declared independence on November 3, 1903.
The newly declared Republic of Panama immediately named Philippe Bunau-Varilla (a French engineer who had been involved in the earlier French canal attempt) as Envoy Extraordinary and Minister Plenipotentiary.
In his new role, Bunau-Varilla negotiated the Hay-Bunau-Varilla Treaty of 1903, which provided the United States with a 10-mile wide strip of land for the canal, a one-time $10 million payment to Panama, and an annual annuity of $25,000.
The United States also agreed to guarantee the independence of Panama. Completed in 1914, the Panama Canal symbolized U.S. technological prowess and economic power.
Although U.S. control of the canal eventually became an irritant to U.S.-Panamanian relations, at the time it was heralded as a major foreign policy achievement.
President Theodore Roosevelt laid the foundation for heavy handed dollar diplomacy 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 so unstable as to be vulnerable to European control, the United States had the right and obligation to intervene.
President 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.
Dollar Diplomacy wasn’t always peaceful. In Nicaragua, U.S. “intervention involved participating in the overthrow of one government and the military support”[ of another.
When a revolt broke out in Nicaragua in 1912, the Taft administration quickly sided with the insurgents (who had been instigated by U.S. mining interests) and sent U.S. troops into the country to seize the customs houses.
As soon as the U.S. consolidated control over the country, Secretary of State Philander C. Knox encouraged U.S. bankers to move into the country and offer substantial loans to the new regime, thus increasing U.S. financial leverage over the country.
Within two years, however, the new pro-U.S. regime faced a revolt of its own; and, once again, the administration landed U.S. troops in Nicaragua, this time to protect the tottering, corrupt U.S. regime. U.S. troops remained there for over a decade.
So there you have it folks. As we watch the Chinese use dollar diplomacy today, It isn’t very hard to figure out where they got the idea.
Obviously they studied their history.