Both during Hamilton's tenure as Secretary of the Treasury and for some years after his resignation, he played a key role in developing early American foreign policy. His debut in the realm of international politics occurred in 1789, when the French Revolution erupted in Paris. Whereas Thomas Jefferson marveled at the republican spirit of the revolution, Hamilton was appalled by its bloodiness.

In 1793, France, under the leadership of Napoleon, declared war on Spain, Great Britain, and Holland. The United States lacked the resources and desire to enter the Napoleonic Wars, and even Jefferson agreed with Hamilton and Washington that the United States should remain neutral. Whereas Hamilton, however, believed that Washington should publicly declare that the United States would remain out of the war, Jefferson believed that Congress should declare neutrality. Jefferson reasoned that because only Congress could declare war, it should also be the only body that could declare neutrality. In the end, Hamilton won out, and convinced Washington to issue the famous Neutrality Proclamation in 1793.

U.S. neutrality was compromised, however, when Citizen Genet, the French ambassador to the United States, began to recruit Americans to fight for the French. Additionally, Genet tried to use American ports to launch French naval attacks on the British and use American soil to train French troops. Genet claimed that this was all perfectly legal and that the United States had an obligation to help France under the 1778 Franco-American treaty that had been signed during the Revolutionary War. Hamilton argued that the United States did not need to honor the 1778 treaty because it had been an agreement with the king of France, not with the new French Republic established during the French Revolution. Hamilton also encouraged Washington to deny Genet's request that the United States repay its debts to France in advance.

Washington did eventually deny Genet's request, but he did not declare the 1778 treaty void, as Hamilton suggested. Genet was allowed to continue his recruitment campaign, which nearly prompted Great Britain to declare war on the United States. Washington ordered Genet to return to France, but Genet asked not to be sent home because he believed that he would lose his head on the guillotine if he returned. Washington allowed him to stay in America.

The British, angry with America's borderline participation in the wars, began taking measures into their own hands. Great Britain still maintained military outposts in the westernmost lands of the United States, and refused to remove these soldiers. British soldiers also began to impress American civilians and merchant sailors into serving on British warships, and the British navy seized hundreds of American merchant ships. To prevent war with Great Britain, Hamilton encouraged Washington to send Supreme Court Chief Justice John Jay to London to sign a treaty with the English. Jay left for England in 1794 with instructions from Hamilton that outlined American goals for the diplomatic talks. In his instructions, Hamilton insisted that British impressments of Americans cease, that all British forts be removed from American territory, and that the random seizure of American ships come to a full stop.

Jay signed a treaty in the fall of 1794, but Jay's Treaty, as it came to be known, was a disappointment for Hamilton. Very few American goals were met, but Hamilton urged Washington and the Senate to ratify the treaty because he believed that war between Great Britain and the United States would otherwise be inevitable. Hamilton wrote a series of essays under the pseudonym "Camillus" that defended Jay's Treaty line by line. His efforts convinced the public, and the Senate ratified the treaty.

Hamilton also helped Washington draft his famous Farewell Address, which Washington delivered in 1796 when he announced that he would not seek a third term as president. In the Farewell Address addressed several important issues, Washington asked the American people not to divide themselves into political parties, and called upon them to maintain and uphold their republican ideals and morality. Furthermore, Washington encouraged the United States not to meddle in European affairs. Many historians believe that Hamilton actually wrote many of the key passages of the speech, even though its tone is distinctly Washington's. Washington retired from public life in 1796, and Vice-President John Adams was elected President, much to Hamilton's dismay.

The French government responded violently to Jay's Treaty, which they saw as an Anglo-American alliance against France. Between the years 1796 and 1800, the French Navy seized or destroyed hundreds of American ships and cut off all formal diplomatic relations with the United States. Hamilton petitioned President Adams to send John Jay to Paris to negotiate another treaty with France. Adams agreed, but when the ambassadors arrived in France, the French government demanded a bribe of a quarter of a million dollars before it would even talk with the Americans. The demand for the bribe became known as the XYZ Affair, named after the three unnamed French diplomats who had demanded payment. Americans were shocked and many demanded war. Hamilton did not want war at this time, but agreed that the U.S. should begin preparing its military.

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