During his brief tenure as Secretary of State Blaine took an active interest in moderating the dispute between Chile and Peru and Bolivia known as the Ten Cents War or the War of the Pacific. Oddly, it was a war over guano – bird dung. That is right, it was a war over bird poop. Surprisingly, guano was in high demand as European military machines required the nitrates for their arms build up. The three nations sharing the otherwise barren desert agreed to a reasonable arrangement whereby each country would tax all guano merchants at the same rate, regardless of nationality. In 1878 Bolivia broke this agreement by increasing the rates on Chilean firms, while keeping those of their native businesses the same. The matter escalated to war. Unfortunately for the Bolivians, the vastly Chilean military quickly brushed them aside. The Chileans invaded Peru, captured Lima, and installed a puppet government, while what was left of the Peruvian army took to the hills. As soon as Blaine became Secretary of State in 1881 he made it a point to mediate this dispute. Not only did Blaine want to increase American prestige in the region, he also sought to prevent European intervention. Blaine recognized Chile won the war but demanded a just settlement.
The negotiations were a total mess. Hugh Kilpatrick, the United States ambassador in Chile, was too sick to perform his job. Stephen Hurlburt, the US ambassador to Peru, disregarded his instructions and took a very pro-Peruvian position. Before leaving office Blaine dispatched William Trescot as a special envoy to straighten out the situation and sent his son Walker Blaine to assist. Trescot and Walker Blaine were surprised to find an intransigent Chile and an unrealistic and demanding Peru.
This was the situation inherited by Blaine’s successor, Frederick Frelinghuysen. Frelinghuysen completely undercut Trescot, and hence Blaine, when he changed the United States position to complete neutrality, meaning the United States did not care about the terms of the settlement. The worst part of this was that Trescot learned of his instructions from the Chilean Foreign Minister, not the Secretary of State. Both he and Walker Blaine were shocked by this lapse of protocol and the stunning change in their mission.
The jury is out on the effect of this change. Trescot believed it prolonged the war by emboldening Chile. On the other hand, historian Justus Doenecke argued that Arthur’s change in position forced Peru to moderate its unrealistic demands. Both sides signed a treaty in 1883 that proved highly favorable to Chile.
While it is doubtful Arthur’s sole motive in the policy change was to embarrass his rival James G. Blaine, it nevertheless had that effect. Not only did he completely reject Blaine’s policy, the Blaine family took the poor treatment Walker as a personal slight.