The Korean War and NSC-68
U.S. Foreign Policy 1949−1950
With the establishment of NATO in April 1949, the USA was optimistic that the Communists had been contained in Europe, first by the Truman Doctrine and now by NATO.
In fact, NATO was quite a 'cheap' option for the USA, as its power rested on the atomic bomb. The USA, therefore, did not have to invest huge sums of money into developing conventional forces in Western Europe to match the Soviet Red Army. However, it should be noted that the USA had little choice but to rely on its nuclear threat, as after World War Two, the USA had demobilised its fighting men, whereas the USSR had not. Thus each side had its 'ace card' − land forces for the Soviets and the atomic bomb for the USA.
However, by the autumn of 1949 two key events occurred that shifted the balance of power in favour of the USSR: the Soviet Union got a nuclear bomb of its own and China fell to the Communist forces of Mao Zedong.
The USSR gets the Bomb
As mentioned, the U.S. security and the key basis of NATO's power was the nuclear bomb. In August 1949 this security was shifted when the Soviet Union announced that it had developed its own atomic weapon. The USA had lost its 'ace card.' Not only that, but the USSR had achieved this far more quickly than the Americans had anticipated.
China falls to the Communists
During the Chinese Civil War (1945−1949) the USA had given limited support to the Nationalists under Chiang Kai-shek. When the country ultimately fell to the Communist guerrilla forces of Mao Zedong, the White Paper report on this clearly stated that the USA could not substantially have altered the outcome. It suggested that Chiang and his forces were simply too unpopular with the Chinese people, and that it had been more a case of Nationalist 'collapse' than Communist 'victory'. The White Paper saw Mao as somewhat 'independent' from Moscow. Secretary of State Dean Acheson expressed the U.S. government's view in 1949:
The reasons for the failure of the Chinese National Government appear ... not to stem from any inadequacy of American aid. Our military observers on the spot had reported that the Nationalist armies did not lose a single battle during the crucial year of 1948 through lack of arms or ammunition. The fact was that the decay which our observers had detected in Chongquing early in the war had fatally sapped the powers of resistance of the Guomingdang. Its leaders had proved incapable of meeting the crisis confronting them, its troops had lost the will to fight, and its government had lost popular support. The Communists, on the other hand, through a ruthless discipline and fanatical zeal, attempted to sell themselves as guardians and liberators of the people. The Nationalist armies did not have to be defeated; they disintegrated. History has proved again and again that a regime without faith in itself and an army without morale cannot survive the rest of battle.
Thus, in 1949 the American experts in Asia believed that they had done what they could in China.
The Red Scare: McCarthyism and the anti-Communist crusade in America
Anti-Communist feeling was strong in the USA after World War Two, but it reached fever-pitched in the 1950s, encouraged by Senator Joseph R. McCarthy of Wisconsin, who alleged that the Soviet Union had a conspiracy to place Communist sympathisers into key positions in American life. McCarthy's accusations led to 'purges' and show trials of those accused of 'un-American' behaviour. Some historians have drawn parallels with the show trials in Stalin's purges of the 1930s. They affected every level of U.S. society − and no group, institution or individual was safe from suspicion. Perhaps the most infamous trial of the period was that of Julius and Ethel Rosenberg, who were convicted of spying for the Soviets, and executed in 1953.
During the 1950s the 'anti-Red' crusade reached its peak. It helped to shape and intensify public opinion against Communism in America. McCarthy and his followers created an atmosphere of near-hysterical suspicion and fear of 'the enemy within.' and McCarthy went as far as to call for a purge of 'comsymps' (Communist sympathizers) in the State Department. He claimed that the Truman administration was under Communist influence and that all American liberals were Communist sympathizers.