REPORTER: Dollar diplomacy.

Dollar diplomacy refers to the foreign policy

promoted by President William Howard Taft from 1909 to 1913.

What was the philosophy behind dollar diplomacy?

Well, Taft and his Secretary of State Philander C. Knox

believed that the goal of diplomacy

should be improving American commercial interests,

both at home and overseas.

They wanted to use American economic power

to maintain global influence.

By the time Taft became president,

he was already influenced by two approaches

to US foreign policy.

The first one became known as the Open Door Policy.

In 1899 under President McKinley,

Secretary of State John Haye coined the term, "open door",

to describe an approach to keeping China open to trade.

The idea being that having equal opportunity

for international trade in a big country,

like China, would protect American financial interests

within the East.

President Teddy Roosevelt inherited

this open door philosophy and would,

in turn, pass it along to Taft.

But Roosevelt integrated another diplomatic strategy.

The Roosevelt Corollary, allowing

US intervention and Latin American conflicts with Europe.

With the corollary in place, Roosevelt peacefully

intervened in the Dominican Republic

by exchanging US loans for the right to choose

the Dominican head of customs.

This use of money as leverage is widely

considered a key inspiration for dollar diplomacy.

Taft justified his brand of diplomacy

by arguing it substituted dollars for bullets.

But how well did it actually work?

Taft believed that whoever controlled

the railroads of a country also controlled its economy.

During his presidency, Japan and Russia controlled the railroads

in China.

Taft worried that the US would be frozen out

of China's financial markets and that it

would undermine the open door policy

if he didn't do something.

So using dollar diplomacy, Taft proposed a deal.

Americans would purchase all of the railroads

from Japan and Russia and then return them to Chinese control.

But Japan and Russia said no, publicly embarrassing

the Taft administration.

So dollar diplomacy was generally a failure in China.

But what about Central America?

Taft encouraged American investment

in developing Latin American countries to help

them maintain stability.

In 1909, dollar diplomacy was used

to strip power from a corrupt president in Nicaragua.

By investing in a challenger, he would take his place.

But even with the US dollars invested in the country

and a new president, Nicaragua still suffered

ongoing political turmoil.

Resentment from Nicaraguans led to revolution.

By 1912, the US was sending in marines instead of money.

Dollars for bullets turned into dollars and bullets.

US forces would stay there for 13 years,

as Nicaraguans grew increasingly skeptical of the United States.

Dollar diplomacy failed in Nicaragua.

And it failed in Mexico too.

Taft encouraged US investors to buy up

land and resources in Mexico.

By 1913, Americans had invested over $1 billion in Mexico

and owned a significant percentage of the land.

But the people of Mexico were angry that dictators

and American investors were getting

rich off their resources while most Mexican people were poor.

Regardless of Taft's intentions, dollar diplomacy

both embarrassed the United States

and angered our southern neighbors.

It seemed other countries didn't want American involvement

in their economies.

But it didn't stop future administrations from doing so.

Woodrow Wilson, however, upon taking office,

immediately denounced dollar diplomacy

and removed government support for American businesses

in China and the Caribbean.

Today this policy is still criticized

for the focus on financial investments as an attempt

to control another nation.

Of course, dollar diplomacy is not

a uniquely American phenomenon.

So while Taft's foreign policy was an ultimate failure,

we can still feel the echo of its influence 100 years later.