Foreign affairs also reflected the close working relationship between business and government. “Any student of modern diplomacy,” declared Huntington Wilson, a State Department official, “knows that in these days of competition, capital, trade, agriculture, labor and statecraft all go hand in hand if a country is to profit.” The 1920s marked a retreat from Wilson’s goal of internationalism in favor of unilateral American actions mainly designed to increase exports and investment opportunities overseas. Indeed, what is sometimes called the “isolationism” of the 1920s represented a reaction against the disappointing results of Wilson’s military and diplomatic pursuit of freedom and democracy abroad. The United States did play host to the Washington Naval Arms Conference of 1922 that negotiated reductions in the navies of Britain, France, Japan, Italy, and the United States. But the country remained outside the League of Nations. Even as American diplomats continued to press for access to markets overseas, the Fordney-McCumber Tariff of 1922 raised taxes on imported goods to their highest levels in history, a repudiation of Wilson’s principle of promoting free trade.

Much foreign policy was conducted through private economic relationships rather than governmental action. The United States emerged from World War I as both the world’s foremost center of manufacturing and the major financial power, thanks to British and French debts for American loans that had funded their war efforts. During the 1920s, New York bankers, sometimes acting on their own and sometimes with the cooperation of the Harding and Coolidge administrations, solidified their international position by extending loans to European and Latin American governments. They advanced billions of dollars to Germany to enable the country to meet its World War I reparations payments. American industrial firms, especially in auto, agricultural machinery, and electrical equipment manufacturing, established plants overseas to supply the world market and take advantage of inexpensive labor. American investors gained control over raw materials such as copper in Chile and oil in Venezuela. In 1928, in the so-called Red Line Agreement, British, French, and American oil companies divided oil-producing regions in the Middle East and Latin America among themselves.

As before World War I, the government dispatched soldiers when a change in government in the Caribbean threatened American economic interests. Having been stationed in Nicaragua since 1912, American marines withdrew in 1925. But the troops soon returned in an effort to suppress a nationalist revolt headed by General Augusto Cesar Sandino. Having created a National Guard headed by General Anastasio Somoza, the marines finally departed in 1933. A year later, Somoza assassinated Sandino and seized power. For the next forty-five years, he and his family ruled and plundered Nicaragua. Somoza was overthrown in 1978 by a popular movement calling itself the Sandinistas (see Chapter 26).

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