An interoceanic canal, in the early 1900s, would make the world smaller. Transportation from US West Coast to US East Coast would make commerce more profitable. Also the US would be hold at a higher regard in the world, and that, in turn, would increase US financial standings. For the longest time at the end of the 1890s and the early 1900s, the US determined that Nicaragua was the spot for an interoceanic canal. Unfortunately, the lobbyists for the canal to be built at Panama instead were more successful. When Washington let the world known of its change of decision, the relationship between Nicaragua and the United States became tense.
Nicaraguan president at the time, Jose Santos Zelaya, began to court foreign investors, mainly Japan and Germany, to build the interoceanic canal instead. The reaction alarmed the US. Another canal controlled by a rival power would diminish the value of the Panama Canal. The US then started backing rebels that were pro-US and when two American citizens were executed in the conflict, the US began directly to take control of Nicaragua militarily. The US then utilized several methods to take control of Nicaragua’s economic and political interests.
Even though President Taft’s “substituting dollars for bullets” were enacted in Nicaragua, when the 1912 invasion were finished, US troops still remained in Nicaragua. Even though the number of troops was in the hundreds, they symbolized the US’s willingness to use violent to achieve their goals. When the national election was held the following year, US used these force as Nicaragua’s election supervisors. The Liberal faction within Nicaragua decided not to participate in this election believing that the election was fixed. This led to a US-friendly Nicaraguan president, Adolfo Diaz. With the US’s promise of providing him troops when he needed it, Diaz’s administration assisted the US signing two treaties, the Castill-Knox Treaty in 1914 and the Chamorro-Bryan Treaty in 1916. The Castill-Knox Treaty gave the US authority to intervene in any Nicaragua’s affair to protect US’s interest. The Chamorro-Bryan Treaty gave the US exclusive right to build a canal in Nicaragua and effectively allowed the US to proceed building the Panama Canal without any worry of foreign investors in the region.
In order to tightening control over Nicaragua economically, the US introduced the Dollar Diplomacy. However instead of a boom in foreign investments in Nicaragua, US’s goal was to maintain a strong presence in the country to prevent rival powers from establishing a foothold in the region. The Dollar Diplomacy created an institution known as the Mixed Commission. The Mixed Commission essentially put Nicaragua’s public finances and economic policy in the hand of Wall Street banks and they carried out austere measures in order to reduce Nicaragua’s debt. Washington believed that Nicaragua’s political instability would resolve if the nation is debt free. However, The Dollar Diplomacy further increased the instability of Nicaragua.
The commission created infighting among the elites who believed that the judges on the commission were unfair and biased favorably for the ruling party. Compound that with the lack of funds in the commission due to the lack of foreign investments, the elites began to have anti-American sentiments. Unfortunately, unlike the time when the elites had the support of the peasants, the commission, indirectly, made it impossible for elites to have the full support of the peasants. The peasants during this period, gained a lot of economic power in Nicaragua society and this eliminated the caudillismo elements, where the elites were essentially used their wealth to get the peasants’ support, in Nicaragua. Therefore, the US did not lose control of its grasp over Nicaragua.
The events leading up to and following the 1912 invasion shaped the US and Nicaraguan relationship for almost a century. In order to secure an important geopolitical interest for the US, the US would invade Nicaragua and upheave the nation’s political stability. The policy that the US imposed on Nicaragua after the invasion pushed the nation further into Washington’s grasp. The Dollar Diplomacy created infighting among the elites immobilizing the Nicaraguan government. The policy also made Nicaragua more economically dependent on the US. On top of these, the policy suppressed dissidents from the elites by empowering the peasants economically. These tactics remained useful tools which the US continued to utilized against Nicaragua throughout the 20th century.