In 1803, the Peace of Amiens collapsed and France and Britain resumed making war against each other. Clinging to neutrality, and trading with both nations, America prospered at first. However, the US soon found itself in the midst of an economic battle. Britain had blockaded the northern coast of Europe to prevent its enemies, the coalition of France, Germany, and Spain, from trading through these lines. Napoleon responded to the blockade with the Berlin Decree of 1806, declaring that all neutral ships which stopped at Britain before coming to the continent would be seized by the French fleet. Britain responded by ordering all ships bound for the continent to stop at Britain, upon penalty of seizure. Napoleon quickly retaliated with the Milan Decree (his army had moved), which stated that all neutral ships even consenting to a British search would be seized. Between these various orders, both the British and French seized many American merchant ships.
To make matters worse, the British changed their policy on what was known as the re-export trade. According to the British rule of 1756, US ships were not permitted to fill in for French ships trading between the West Indies and Europe during time of war. The solution to this restriction had traditionally been to ship goods from the West Indies to America, unload them, and then reload them to be shipped to Europe as American goods. However, in 1805, in a case involving the USS Essex, the British ruled this practice illegal, and began searching outgoing ships off the coast of the US for contraband.
As if these economic impositions were not enough, the British added the threat of impressment. The British navy experienced huge numbers of desertions due to low wages and morale. Many of these deserters found work sailing on US vessels. The British, ever in need of sailors, began stopping American ships, mustering the crew, and impressing those who were or had been British subjects into the royal navy. They often seized naturalized or even natural-born American citizens as well. With the French seizing ships in European ports, and the British accosting ships at sea, Thomas Jefferson sent diplomats to try to work out an agreement with Britain. The envoy walked away with a treaty so weak Jefferson refused to even show it to the Senate.
Anglo-American tensions reached a head in the Chesapeake-Leopard Affair. On June 22, 1807 the British naval frigate HMS Leopard followed the American naval frigate USS Chesapeake out of Norfolk harbor in Virginia, and opened fire upon it after a request to board had been denied. The Chesapeake, not prepared for battle, lost three men and had twenty wounded, and permitted the British to board. The British naval officers boarded, seized four men who had deserted the royal navy, hanged them from a yardarm, and sailed away.
Jefferson, outraged, issued a proclamation banning all British warships from American waters. Congress took measures to expand the army, and on December 22, 1807, passed the Embargo Act. The act prohibited any ship from leaving a US port for a foreign port, effectively ending both exportation and importation. Jefferson described the act as a means of peaceful coercion.
Despite substantial damage to the British economy, the Embargo Act hit the US harder. Merchants, artisans, and farmers alike, all suffered because of trade isolation. Unemployment was rampant and debtors prisons were filled. By December 1808, the Embargo Act was vociferously despised throughout the nation. Congress finally voted to terminate the act on March 3, 1809, replacing it with a non-intercourse law preventing trade with Britain and France and granting the President the power to determine when it should be resumed. Jefferson had announced he would not run for re-election even before the failure of the Embargo Act. James Madison, his secretary of state, won the election of 1808 and became president March 4, 1809.
Late in Jefferson's presidency the United States was once again playing the role of pawn in the game of European power. France and Britain each tried to use the US to their advantage and keep their opponent from using the US. As far as Britain and France were concerned, they were the only two superpowers in the world, and all other, less powerful nations had to ally themselves with one of the two sides in times of war. All of this left Jefferson with no clear course of action if he wanted to maintain neutrality. Delaying action, the US was embarrassed and made to look weak as its ships were seized abroad. Britain and France both seized American ships, but British seizures were much more humiliating for the Americans. While the French navy was relatively weak, and France's seizures occurred mostly in and around European ports, British warships waited just off the American east coast, stopping and searching nearly every ship THAT departed from major port cities. Impressment added another element of embarrassment to American interaction with the British. Not only could the Americans say nothing while their ships were stopped without reason, they could not protect individual sailors either, even if they were naturalized citizens.
The Chesapeake-Leopard Affair finally triggered an American response because it violently demonstrated all of the offensive actions that the British had partaken in for years. They disrespected American ships, even naval ships, in their home waters, thought nothing of damaging American ships and cargo, and brought retribution upon US ships for desertions the Americans had no part in. With the nation outraged, and many calling for war, Jefferson searched for a way to punish the British and French for their refusal to accept US neutrality while maintaining that very neutrality. His answer was the Embargo Act. Technically, the Embargo Act only prevented exportation, but few ships would carry goods to US harbors knowing they would be forced to leave without cargo. The effect of the Embargo Act was to place the United States in economic isolation. Jefferson hoped that applying pressure to French and British trade, he would force the two nations to respect US neutrality. Additionally, Jefferson and Madison agreed that a positive side effect of the Embargo Act would be the encouragement of domestic manufacturing.
Britain did suffer greatly under the embargo. There were food riots in northern England, and textile mills shut down without imported raw cotton. The British business class had begun to organize in efforts to push for an end to British offenses at sea just as the Embargo Act was lifted. The British simply had a greater capacity for finding ways around the embargo than did the US. For instance, new markets had opened in South America, where a revolt against Spanish rule opened the door for British trade.
The US, on the other hand, was not prepared to deal with economic isolation. Roads were inadequate and overland trade was exorbitantly expensive. The navy found it difficult to enforce the embargo and many shippers willingly broke the terms of the Embargo Act. The nation as a whole was thrown into depression. 30,000 American sailors were unemployed, and jails filled with debtors who could not make good. Farmers, who could not sell their produce abroad were devastated, and the embargo shut down the primary source of income for New England's merchants. True, US manufacturing grew markedly during this period. Before 1808, the US had only fifteen mills for turning cotton into textiles. By the end of 1809, that number had reached 102. However, this did not lift the spirits of the struggling nation, which cried out for an end to the embargo.
The Embargo Act ended in failure, and the British and French continued to harass Americans at sea. Though James Madison would cling to neutrality as dearly as his predecessors had before, he could not avoid the outbreak of the War of 1812.
Despite this sour note, Jefferson left office having done much good for the nation. He had reduced taxes, cut the national debt, and most importantly, more than doubled the size of the nation. He is remembered as a great president both for the simple style with which he governed and his many accomplishments while in office. Though the declining economic condition of the nation spurred the Federalists to a small comeback in the congressional elections of 1808, the nation was still overwhelmingly Republican, and Madison had no trouble winning the presidency. In that office, he would try to continue the Republican legacy Jefferson had started.