In September of 1950, with the North Koreans believing the US/UN/ROK forces trapped, MacArthur started to withdraw Marines from Pusan. He had planned a masterstroke, a daring amphibious assault on the Korean port of Inchon, halfway up the peninsula. MacArthur planned to use Inchon as a base to attack Seoul, and from there cut off supplies to the North Korean People's Army (NKPA), which was then assaulting Pusan. This was a classic "pincer" move, intended to crush the North Koreans between the Eighth Army at Pusan and MacArthur's troops landing at Inchon, X Corps.
X Corps was 70,000 men strong, and after a close call with the typhoon Kezin, the Marines took Wolmi, an island near Inchon, with minimal casualties. By nightfall on September 15, X Corps controlled Inchon. X Corps made a dramatic push to Seoul, and by September 27, Walker's Eighth Army from Pusan met up with X Corps. The North Korean army had been decimated. On September 29, Syngman Rhee was restored to power in Seoul.
Rather than stopping at the 38th Parallel, MacArthur, with American support, sent his forces north of the dividing line. Meanwhile, Zhou Enlai, the PRC Foreign Minister, promised that the PRC would defend North Korea and send troops across the Yalu if the US crossed the 38th Parallel. On July 17, the PRC attacked the Chinese nationalist held islands of Quemoy and Little Quemoy, which Americans viewed as a staging area for an invasion of Formosa. MacArthur traveled to Formosa on July 19; still, US leaders continued to view Zhou's threats, which did not travel through official channels, as mere posturing.
On August 17, the US announced in the halls of the UN building its goal of unifying Korea. By late August, the US/UN/ROK forces were advancing further north in Korea, approaching the Chinese border. The accidental US/UN/ROK bombing of a Manchurian airfield just north of the Yalu River, which separates North Korea from Manchuria, further alarmed PRC leaders.
On October 9, MacArthur sent his forces across the 38th Parallel near Kaesong, wanting to capture Pyongyang, the North Korean capital. MacArthur even planned another amphibious assault at Wonson, which the JCS opposed. MacArthur went ahead with the Wonson landing anyway, but it proved to be unnecessary.
On October 15, Truman flew to Wake Island to meet with MacArthur. At the Wake Island Meeting, Truman tried to emphasize the importance of handling the Korean situation carefully and diplomatically. MacArthur, on the other hand, predicted that neither the USSR nor the PRC would likely come to North Korea's aid. MacArthur returned to Korea uncowed, and his forces occupied Pyongyang in a matter of days.
MacArthur's invasion of Inchon was particularly bold and difficult. The invasion was so difficult that the JCS advised against the invasion. For one thing, Inchon's tides fluctuate wildly, and if the invasion was not timed perfectly, the area the X Corps planned to traverse by boat would be nothing but a mudflat. A second difficulty arose because MacArthur decided invade in the middle of typhoon season. Fortunately, for X corps, while typhoons threatened the Inchon landing, they didn't actually interfere, and the timing ended up working out.
After his amazing success at Inchon, MacArthur became even more of a hero to many Americans. Capturing the imagination of voters and the US press, MacArthur became virtually immune to criticism, further fueling his egomania and independent willfulness that would soon complicate the Korean War.
After Inchon, the United States had achieved its main goal of restoring Syngman Rhee's anti-Communist South Korea. Having defeated the North Korean army and pushed it out of South Korea, why didn't the US quit while it was ahead? Dean Acheson and John Foster Dulles were hawkish and pushed for a fully unified Korean anti-Communist state, and Syngman Rhee was consistently calling for war against North Korea, all influencing Truman. Furthermore, the growing prevalence of McCarthyism in the US made many Americans afraid of appearing "soft on Communism." In October, a Gallup Poll showed that 64 per cent of Americans wanted to pursue the Communists north of the 38th Parallel. By not pursuing the war north of the 38TH Parallel, US leaders felt they could be construed as tacitly acknowledging that Communist North Korea had a right to exist. Although in hindsight, stopping MacArthur's advance at the 38TH Parallel probably would have been prudent, political realties at the time made this a very difficult call to make. Even Eisenhower agreed that the MacArthur should pursue the North Koreans across the 38th Parallel. The fact that MacArthur's orders allowed him to send forces across the 38TH Parallel, without ordering him to attack, hints that perhaps was trying to shift responsibility for the action onto MacArthur.
American incursion into Northern Korea did worry the Chinese, who suspected that North Korea might provide a convenient base from which the US could invade Manchuria. Although it does not seem the US had a plan to invade Manchuria, the Chinese were making reasonable guesses based on the limited information they had. Based on the accidental bombing of the Manchurian airfield and MacArthur's visit to Formosa, they suspected a conspiracy was afoot. Even the Truman-MacArthur meeting at Wake Island looked bad. Though at the meeting Truman reminded MacArthur to be careful, the Chinese took it as a sign that the US was planning a major attack. Furthermore, MacArthur was then spouting incendiary, unofficial statements about attacking Communism. Of course, Truman could not fire the popular MacArthur at this point, so the PRC continued to worry about possible American aggression.
On September 11, 1950, Truman approved NSC-81/1, a National Security Council memorandum that provided the rationale for an invasion of North Korea. NSC-81/1 assumed that since the USSR and the PRC had not stationed troops in North Korea, they would not intervene once the US invaded. However, the USSR and the PRC did not know US leaders were thinking like this, and "volunteer" PRC forces were already secretly preparing to enter North Korea. NSC-81/1 is sometimes criticized as subscribing to "flawed logic."