Taft differed greatly from Roosevelt in his conduct of foreign, as well as domestic, affairs. Taft's experiences in the Philippines and in the cabinet should have provided him an excellent background in the conduct of diplomacy, but he shunned both Roosevelt's method of proceeding with as much executive action and as little congressional consent as possible and his realistic policy of peace through strength to protect the nation's interests.
Never bellicose, Taft sought to settle international disputes by peaceful means, particularly through the use of the Hague Court of Arbitration or by international commissions of inquiry if diplomatic efforts failed. Pacific means served to settle the Pribilof Islands pelagic sealing question that had for years disturbed the United States, Great Britain, Canada, Russia, and Japan; the fisheries dispute with Newfoundland; and the United States-Canadian boundary. Roosevelt agreed to the arbitration of questions not involving national honor or vital interests, whereas Taft agreed to unlimited arbitration and in April 1911 told Archie Butt that a treaty of this kind with Great Britain "will be the crowning jewel of my administration . . . but also the greatest failure if I do not get it ratified." He failed to take into account a Senate extremely jealous of its prerogatives in the treaty-making process and Roosevelt, who countered that, Britain excepted, "the United States should never bind itself to arbitrate questions respecting its honor, independence, and integrity."
On 3 August 1911, Taft won popular applause when he submitted to the Senate unlimited arbitration treaties with Britain and France. The Senate Foreign Relations Committee deleted the paragraph permitting the referral of arbitral matters to an international commission apart from the Senate, declared that no such commission or court could tell it what was subject to arbitration, and added a long list of items not subject to arbitration, including immigration policy and the Monroe Doctrine. Passed by the Senate mainly to embarrass Taft, the treaties had to be rewritten before being resubmitted to Britain and France, and Taft's appeal to the people in a speaking tour merely strengthened the Senate in its resolve to hold its ground.
Moreover, Taft overlooked the fact that he had refused to arbitrate with Britain over the Panama Canal tolls and thus damaged the principle of arbitration itself. In contrast he agreed to arbitrate the question of the ownership of the Chamizal tract on the Texas-Mexican border, which had hung fire since 1897 and would not be settled until the late 1960s.
Because dictator Porfirio Díaz welcomed foreign investments in Mexico, conservatives, including Taft and his minister to Mexico, disliked the nationalistic and reformist principles of his opponent in the presidential elections of 1910, Francisco Indalecio Made-ro. While Taft sent military forces to the Mexican border and ships to protect American lives and property during the civil war that broke out between Díaz and Madero and, after the murder of Madero, General Victoriano Huerta, Taft consistently honored his promise not to intervene. Rather than present the incoming Wilson administration with a fait accompli by recognizing the new Huerta regime, he bequeathed it the Mexican problem.
Taft's secretary of state, Philander C. Knox, was an excellent lawyer but an abominable statesman. Moreover, for his first assistant secretary he chose a man who equaled his capacity for antagonizing people, Francis M. Huntington Wilson. In any event, on Knox's advice Taft reorganized the State Department by creating several new positions and the now familiar geographic desks. As for policy, Taft and Knox agreed upon the need for the strategic defense of the Panama Canal, then under construction, by promoting peace in the Caribbean and Central America; support of the Monroe Doctrine; and "dollar diplomacy," the policy of actively encouraging American investments abroad with the object not only of earning profits but of promoting economic and political stability in the areas of investment and thereby world peace. As Taft put it, he was substituting "dollars for bullets." While his strategic and commercial objectives were the same as Roosevelt's, it was hard to believe his saying that dollar diplomacy also appealed to "humanitarian sentiments." On the other hand, conditions south of the border occasionally menaced American interests. Particularly in Central America, politics were corrupt, economic development lagged, financial indebtedness was prevalent, and revolutions were endemic in those countries that did not have oppressive dictators.
The best examples of the working of dollar diplomacy were in Colombia, Honduras, and Nicaragua. Bitter toward the United States because of its rape of Panama and seeking compensation for the loss, Colombia wanted to arbitrate differences. Taft offered $10 million and a statement sounding like an apology. When Colombia refused, he raised the ante to $25 million, which was also refused; he left office without solving the problem.
To help Honduras liquidate its large foreign debt, Taft suggested a loan to be secured by American control of its customhouses. While various American bankers were willing to assume the great risks involved, the Senate Foreign Relations Committee refused to approve the loan. When a revolution broke out in July 1911, Taft sent warships that landed troops and a special envoy to arbitrate differences. When he offered a new loan arrangement, Honduras refused, thereby leaving this problem also unsolved.
Nicaragua was ruled by an unscrupulous dictator, Europeans held much of its debt, and Washington did not want its alternate canal route to fall into unfriendly or foreign hands. Following a revolution in October 1909 in which two Americans serving with the insurgents were executed, Washington instituted what was popularly called the "Hard Knox Policy." Naval vessels sped to both Nicaraguan coasts, recognition of its government was withdrawn, and a hundred Marines were stationed in its capital, Managua. Nicaragua's request for a loan in September 1910 opened the door for dollar diplomacy, and Taft recognized a new government. The American loan would stabilize Nicaragua's finances, the canal site would be safe, Nicaragua could pay off its foreign debts, and American control of the customs would remove them from the grasp of revolutionaries. Taft therefore concluded that the new financial arrangement and peace treaties with Nicaragua's neighbors would provide "a complete and lasting economic regeneration . . . of inestimable benefit to the prosperity, commerce, and peace of the Republic." But bad luck brewed.
During disorders in 1912 in which insurgents seized some American properties, Taft sent several warships and about twenty-seven hundred Marines to protect American lives and property. When the Senate rejected his financial plan, the new Nicaraguan president asked for $3 million in return for an option on the canal route and certain concessions that would make Nicaragua virtually a financial protectorate of the United States and even permit intervention in its internal affairs. No action was taken in the matter before Taft left office. Taft's dollar diplomacy had generated much ill will south of the border. Arbitration proved useless, Pan-Americanism made no progress, and the Lodge Corollary to the Monroe Doctrine further angered Latin America. (The 1912 corollary blocked the sale of a part of Baja California to a private Japanese syndicate, an act considered a threat to California and the Panama Canal.) Equally poor success marked dollar diplomacy in China. Knowing that he could not get all the nations with spheres of interest therein to abide by the Open Door, Roosevelt had mediated between Russia and Japan in 1905 in great part to prevent Japan from becoming the primary power in the Far East and thus able to close it. He further salved Japan, in return for understandings arranged by Taft as secretary of war that it had no designs on the Philippines, by permitting it to acquire sovereignty over Korea. However, Taft and Knox tried to use the Open Door to increase the export of American surplus goods and to allow America to acquire financial supremacy in China and Manchuria. They thereby challenged vested European and Japanese interests in China and greatly exacerbated Japanese-American relations.
American trade with China was only about 10 percent of its total overseas trade, yet Taft wanted the United States to become a Pacific power. He and Knox agreed to try to buy the Russian and Japanese railroads in China; if Japan would not sell, a competing road would be built with funds provided by the American Banking Group, which American bankers established for China at the request of the State Department. China was of course anxious to have Taft defend it, particularly from Great Britain and Japan, and to grant it loans for railroad construction, currency reform, education, and other undertakings.
Determined to prevent Japan from monopolizing foreign investments in China, Taft asked Japan to let the United States join a Chinese-Japanese mining venture in Manchuria and a British, French, and German railroad consortium—the Hukuang loan. Blocked by the Europeans and China, he took a very unusual step and appealed directly to the Chinese prince regent for equal American participation in the Hukuang loan and, after almost two years, won his point in May 1911. There was also a scheme to build a railroad from Chinchow to Aigun by an international consortium and a plan for still another consortium to acquire, and thus neutralize, all foreign-dominated railroads in China. Although Knox spoke about these measures as attempts to keep the Open Door open, it was easily seen that he was using the Open Door as a financial weapon, and he was defeated by China, Russia, Japan, and the interested European powers.
How well had Taft and Knox aided China? While the Hukuang and currency-reform loans went through, they helped spark a revolutionary outbreak in China and failed to push American capital where it would not go of its own accord. In fact, American exports to China declined from $58 million in 1905 to $15.5 million in 1910. Perceiving Taft and Knox as using the big stick in seeking an economic penetration of China, the Russians, the Japanese, and their respective allies formed a close defensive alliance against the United States.
Although Taft would not give up American extra-territorial rights in China or permit the naturalization of Chinese in the United States, he kept a close eye on attempts by various native reformers to change the Chinese imperial government into a constitutional democracy. When the call for a constitutional convention came late in 1912, he was faced with deciding whether to recognize a Chinese republic unilaterally or in concert with the other five major powers operating in China. He opted for concerted action, but by this time the shadow of the incoming Wilson administration lay over Washington. Taft followed Roosevelt's policies with respect to Japanese landownership and immigration. A renewed Japanese-American treaty of commerce and navigation that went into effect on 5 April 1911 contained nothing about the right of Japanese to own land in the United States and did not change America's Japanese exclusion policy.