From the Civil War until after the United States emerged from World War II as the most powerful economy in the world, America used economic sanctions more sparingly. Gone was the confidence that economic sanctions could substantially affect a powerful enemy. In this period, sanctions were used more as a gesture than as a weapon. They might be used to indicate moral disapproval or to keep the United States out of foreign wars. They might be used as a warning of firmer measures to come, or as a futile substitute for war when armed force was impolitic. But Americans no longer regarded economic sanctions as an extraordinarily potent weapon in their foreign policy armory.
In 1898, Congress passed a joint resolution granting the president authority to bar the export of coal or war matériel from American seaports during the Spanish-American War. This embargo was merely an adjunct to war, not an important weapon in itself. President Theodore Roosevelt stretched the authority of this law in 1905 to keep weapons from falling into the hands of revolutionaries in the Dominican Republic, where the United States had taken control of the customs. In 1912, when the government of Francisco I. Madero protested American shipments of arms to Mexican rebels, Congress gave President William Howard Taft more specific authority to handle the situation than it had delegated to Roosevelt. It amended the 1898 resolution to provide that when there existed in any Western Hemisphere country conditions of domestic violence promoted by U.S. arms, the president should proclaim that fact. This would make exports of arms or munitions illegal except as the president provided. In effect, this gave the president the right to provide arms to whichever side he favored. Taft used this authority to embargo all arms to Mexico, but when a revolt broke out against the reviled Victoriano Huerta, President Woodrow Wilson lifted the embargo so that arms could be shipped to Huerta's opponents. When the United States recognized the government of Venustiano Carranza, it restored the embargo but made American arms available to Carranza's forces near the U.S. border. Then Pancho Villa began raiding in the area, so Wilson sent General John J. Pershing across the border after him and removed the exemption to the embargo. Thus, the United States had begun a regular use of arms embargoes as a means of controlling or manipulating domestic revolutionary situations in the Western Hemisphere, as well as using them to prevent aid to nations with which it was at war.
During this same period, U.S. businesses began serious overseas operations and another kind of embargo made its appearance—the capital embargo. Throughout most of American history, capital embargoes applied only to loans involving the public sale of foreign bonds and were quite informal. The government had only to recommend against a loan, and foreign bonds would not find purchasers because prospective buyers knew that the government would not enforce payment if the borrowing country should default. Thus, Taft's secretary of state, Philander C. Knox, discouraged a loan to China during the revolution of 1911, and Wilson discouraged a consortium seeking to reorganize a loan to China in 1913. Wilson also advised against loans to the belligerents during World War I but reversed that policy in 1916. In March 1922 the State Department made its informal policy official by announcing the hope that American corporations contemplating loans would check with the department first.
Just prior to World War I, Wilson dusted off the idea of a broader use of economic sanctions as a means of forcing the British to reduce their interference with American shipping to the European continent. In September 1916, he persuaded Congress to pass a law permitting him to ban imports and deny clearance for any departing vessels. After his reelection in November of that year, he hinted to the British that he might use that authority to embargo arms or deny clearance to vessels refusing to carry goods for firms black-listed by the British. Since the British blockade had already cut off trade to Germany, any embargo would hurt only the Allies, thus paralleling the situation in Jefferson's day. Wilson never actually exercised his authority because he was more concerned with German submarine warfare than with the British blockade or black-list. He did not want to find himself in the position of Jefferson and Madison, locked in a dispute with both belligerents at the same time or allied with the wrong nation because it capitulated more quickly to U.S. sanctions.
With the entry of the United States into the war, Congress embargoed all supplies to the Central Powers by passing the Trading with the Enemy Act of 1917. This embargo was wielded against the neutral powers of Europe, driving them into agreements to limit trade with the Central Powers in exchange for vitally needed goods from the United States. These agreements, along with blacklisting and limits on coal supplied to ships seeking refueling at U.S. ports and bases directed against firms within neutral countries suspected of trading with the enemy, tightened the economic noose that the Allied blockade and American embargo placed around the Central Powers and contributed substantially to the Allied victory in World War I.
After the war there arose in the United States a general revulsion against American involvement in world politics, and the policy of using economic sanctions as an alternative to political or military entanglements came to play an important part in the debate over the shaping of a new foreign policy for the United States. As a kind of prelude, Congress made two minor gestures in 1922. It expanded the arms embargo of 1912, which had previously applied only to Western Hemisphere countries, and permitted the president to embargo arms to countries where the United States exercised extraterritorial jurisdiction whenever there existed conditions of civil violence. This law was directed primarily at China. Also in 1922, the State Department recommended against credits to Soviet Russia because that nation refused to pay its war debts. But neither this capital embargo nor the refusal to recognize the Bolshevik regime hindered American trade with the Soviets.
Consideration of a broader use of the arms embargo began later in the 1920s. Some influential Americans wanted the president to have authority to embargo arms and munitions to any aggressor nation. They saw this measure as a chance for the United States to cooperate with the League of Nations. They were fearful that America's traditional policy of neutrality, which insisted on a neutral's rights to trade with all belligerents, would undermine any system of collective sanctions the league might undertake. Conversely, American cooperation in those sanctions would strengthen the league and the system of collective security immeasurably. Thus, they argued for a discretionary embargo, which would allow the president to embargo arms to aggressor nations but to supply arms to the victims of that aggression.
The movement for cooperation with the league ran head-on into a growing countermovement inspired by disillusionment with World War I and a belief that American involvement in the war had been manipulated by munitions makers and other so-called merchants of death. This countermovement, too, called for an arms embargo, but its advocates insisted that the embargo be impartial. The purpose should be to keep the United States out of any future wars, not to deter future wars by the threat of collective sanctions against aggressors. This debate created a groundswell of support for some sort of arms embargo. By the mid-1930s, only a few congressional voices, along with the weapons manufacturers themselves, still called for adherence to America's traditional policy of enforcing a neutral's right to trade with belligerents in any commodities whatever.
Although the debate over arms embargoes began in 1928, Congress did not pass the first Neutrality Act until 1935. Henry Stimson, secretary of state in the late 1920s, favored a discretionary embargo to strengthen collective security but received little support from President Herbert Hoover. Without strong administration backing, the measure failed. Hoover was particularly adamant against imposing economic sanctions on Japan for its aggression in Manchuria, sanctions strongly favored by Stimson. Instead, Hoover forced Stimson to retreat to an ineffective policy of refusing to recognize any gains Japan might make, a policy ironically known as the Stimson Doctrine.
Franklin D. Roosevelt came to the presidency pledged to Stimson's policy of discretionary embargoes. Such an embargo actually passed the House in 1932. But when it encountered opposition in the Senate, Roosevelt consented to an impartial embargo, a complete negation of collective security. When his own advisers, including Secretary of State Cordell Hull, objected to his concession, Roosevelt agreed to drop the whole matter, and the embargo died.
The issue was revived during the next congressional session, however. Bolivia and Paraguay were engaged in the Chaco War, and the administration wanted to cooperate with the League of Nations in an arms embargo against both nations. Roosevelt could have supported a general impartial embargo on all warring nations; one was already before the Senate. But he still hoped for a discretionary embargo, and so he settled for a specific resolution embargoing arms to Bolivia and Paraguay only. This was the first time the United States had adopted an embargo avowedly for the purpose of stopping a war between two countries, and in that way it could be seen as a step toward collective security. In fact, it strengthened the concept of an impartial embargo because it stopped arms to both countries. The widely publicized Nye Committee hearings and the publication of several best-selling books further strengthened the concept of an impartial embargo by promoting the idea that American economic interests, particularly the munitions makers, had been responsible for America's entry into World War I. Perhaps even more important in the movement for an impartial embargo were the growing crises in Europe and Asia, as Japan, Germany, and Italy engaged the other powers in an arms race and embarked on campaigns of territorial expansion. Many hoped that the United States could escape the coming conflagration by embargoing arms and thus not repeating the supposed error of becoming involved in World War I.
The result of this growing movement was the Neutrality Act of 1935. Rejecting an administration bill allowing discretionary embargoes, Congress instead passed a mandatory impartial embargo on arms to belligerents, closed American ports to belligerent submarines, and prohibited Americans from taking passage on belligerent liners. The administration managed to limit the act to six months' duration, and then to use it for its own purposes. When Italy attacked Ethiopia, Roosevelt, to show America's displeasure with Italy, put the Neutrality Act into effect and declared a further "moral embargo" on any trade with the belligerents that was not covered by the Neutrality Act. Although supposedly impartial, the actions hurt only Italy. The United States had no trade with Ethiopia, and Ethiopia had no passenger liners to suffer from a prohibition against American passengers.
Although these actions may have given America some spiritual satisfaction, they had little effect on the course of world events. American businesses defied the moral embargo, and the League of Nations embargo omitted oil from the list of prohibited exports. Since oil was Italy's most vital need, the conquest of Ethiopia continued apace. This failure notwithstanding, Congress renewed the Neutrality Act in 1936 and added a provision prohibiting loans to belligerents. The administration and the business community managed to stave off a movement for an impartial general embargo rather than a mere arms embargo, but sentiment for a general embargo gained considerable strength as the year wore on.
When civil war broke out in Spain later in 1936, Congress honored the administration's request to embargo arms to that country. As Germany and Italy began to provide massive support for Francisco Franco, liberals put considerable pressure on the U.S. government to lift the embargo and supply the Loyalists. But the embargo remained. The advocates of collective security had been defeated again.
In 1937, congressional pressure to expand the arms embargo to a general embargo applying to all belligerents frightened many businessmen, and they sought a way to sidetrack the issue. Presidential adviser Bernard Baruch came up with a suggestion of "cash-and-carry," arguing that as long as American goods were purchased and transported by belligerents, the capture or sinking of the goods would not affect the United States. In return for other concessions, the administration succeeded in making the cash-and-carry principle discretionary, to be instigated with the rest of the Neutrality Act only at the option of the president. Roosevelt was also willing to accept cash-and-carry because he realized it would favor Britain and France; Great Britain controlled the seas and could ensure that only Allied ships would reach the United States to take advantage of the offer. The Neutrality Act of 1937 passed Congress just one day before the expiration of the act of 1936 and was flown to the presidential yacht in the Gulf of Mexico for Roosevelt's signature.
The Neutrality Act of 1937 was the high-water mark for advocates of an impartial neutrality; the decline of the movement had already begun. American sentiment was heavily against Franco's forces, and many regretted the embargo on arms to his opponents. Then, in 1937, Japan renewed its war against China. By rights, Roosevelt was supposed to embargo arms and loans to both nations and, if he chose, to establish the cash-and-carry policy. But both of these actions would favor Japan, since China needed the arms and credits, whereas Japan needed neither. Also, Japan was a sea power capable of taking advantage of the cash-and-carry policy. Roosevelt avoided this dilemma by pointing to the technicality that no official declaration of war had been made. Thus, he refused to invoke the Neutrality Act, enabling private loans and arms to continue to flow to China. Roosevelt followed this action with his famous quarantine speech and then imposed a moral embargo on exports of aircraft to Japan. Although isolationism remained strong and Roosevelt was forced to retreat from his quarantine policy, the American people generally accepted his tacit ignoring of the Neutrality Act. The United States was beginning to use sanctions as weapons against aggressors rather than as a means of avoiding conflicts.