Miller Center

American President

A Reference Resource

Foreign Affairs

Warren Harding gave his secretary of state, Charles Evans Hughes, a free hand in foreign affairs. A leading internationalist, Hughes worked with Secretary of Commerce Herbert Hoover and Secretary of Treasury Andrew Mellon to design a foreign policy enabling the U.S. to participate in the world's economic life while retaining a free hand in international relations. They hoped to use American banks, such as the John D. Rockefeller-backed Chase National Bank, to replace British financiers in the handling and financing of world trade. Hoover established a corps of commercial attach�s to work with career Foreign Service officers in the pursuit of foreign markets. Hughes and Hoover used the reciprocity provisions of the Fordney-McCumber Tariff Act to secure minor concession on rubber in Malaya and on oil in the Middle East—especially in Mesopotamia (modern-day Iraq) and Persia (modern-day Iran). Hoover and Hughes encouraged seven American oil companies to form a consortium, led by Standard Oil of New Jersey, to seek participation in Iraqi oil concessions, thus inaugurating an "open door" policy for U.S. investment in energy resources in the Middle East.

In Europe, Treasury Secretary Mellon attempted to direct financial affairs in the face of the massive U.S. investments and loans during World War I. Resisting efforts to forgive European indebtedness to America, which stood at about $12 billion in 1920, Mellon secured the appointment of Charles G. Dawes, a midwestern Republican banker, to head a commission to revise the amount owned by Germany for reparations. In March 1923, the Dawes Plan scaled down Germany's payments to 2.5 billion marks over the next fifty years. The German economy then took off like a rocket, fueled by a massive injection of American loans ($2 billion over the next five years) that were used to pay reparations. The Europeans, in turn, used part of the reparation payments to fund debts (drastically reduced by the Dawes Plan) owed to the U.S. in a curiously circular flow of capital. In total, the actual debt paid to the U.S. never equaled more than a mere fraction of the original debt and interest due (about $22 billion).

Washington Armament Conference

High on Mellon's and Hughes's agenda was their desire to curb the arms race that had spun out of control prior to 1914. Committed to reducing spending, Mellon did not want to continue expensive naval development. The U.S. now rivaled England as a naval power, with Japan close behind. Fearful of a costly naval rivalry in the Pacific, Hughes called for a naval conference in Washington to negotiate freezing the present status. Hughes shocked the delegates with his proposal for scrapping fifteen American capital ships built during the war. His plan called for rough equality between England and the U.S., with a Japanese navy 60 percent as strong as the two leaders. Since Japan used its fleet only in the western Pacific while England and the U.S. had a two-ocean navy, the Japanese actually would be the premier naval power in its home waters. France and Italy were held at a ratio far below the other three. Moreover, a Nine Power Treaty emerged out of the conference, in which all of the signature states with interests in the Far East guaranteed the territorial integrity of China and an "open door" to trade and investment there.