Still, the Longhorn smelter’s construction was not entirely a response to the war. Indeed, the smelter was established explicitly to “eliminate this country’s dependence on the foreign tin cartel.” The British, who along with Patiño dominated the International Tin Committee, hoped to first dissuade the Roosevelt administration from building the smelter. Failing that, they sought to secure a commitment that the Longhorn smelter would be closed at the end of the war. Needless to say, the State and War Departments refused both requests, adamant that the United States never again be held hostage by the ITC. Indeed, when State Department analyst Herbert Feis negotiated the first contract with the Bolivians in 1940, he sought a twenty-five-year commitment of all Bolivian tin—a clear indication of U.S. long-term goals. Although the British were horrified by the prospect of the U.S. government entering the field of tin processing, Feis coolly reminded them that the discrimination and restrictions of the previous half century made this move inevitable. When the British complained that a U.S. smelter could not be operated profitably, Feis retorted that, although this was “probably true,” underhanded British tactics and the cartel had never permitted that thesis to be tested. Indeed, U.S. corporations had, on several occasions, attempted to open smelters on U.S. soil in the past, only to have the British drive them into bankruptcy.53
The State Department sought more than one thousand tons of tin concentrates per month to supply the Longhorn smelter, but this requirement ran afoul of existing contracts that sent almost all Bolivian tin to Great Britain. Because the British smelted nearly all of their Far Eastern tin in Malaya, smelters in England were almost entirely dependent on Patiño’s Bolivian production. Still, after the fall of Holland, where the Arnhem smelter had traditionally processed Hochschild’s and Aramayo’s tin, Peñaranda and Hochschild encouraged construction of the Longhorn smelter. Not only might U.S. competition break Bolivia’s dependence on the British smelting monopoly, but it would also permit the tin barons and the government to acquire dollars rather than blocked sterling. The first U.S. offer was for 42¢ per pound, slightly more than London was currently paying, and the Japanese made their own offer soon thereafter. Within weeks, Peñaranda and the tin barons were presiding over a bidding war among the three rival nations.54
Although Patiño saw the Longhorn smelter as a means to “extricate” himself from restrictive British sterling contracts, and other tin barons viewed it as a way to weaken Patiño’s dominant position in smelting, they soon found that the sword cut both ways.55 The Bolivians sought 45¢ per pound for all grades of tin concentrates, but the United States hoped to pay just 42¢ for only the highest grade. For the tin barons, the U.S. contract was a unique opportunity: neither the British nor the Dutch smelters had been willing to process their lowest-grade concentrates, and if they could secure a fixed price, they would now be able to export their lower grades. Washington attempted to break the deadlock by increasing the amount of tin it would purchase to eighteen thousand tons per year, but the Bolivians demanded even more concessions regarding smelting charges. After months of negotiation, the State Department, eager to begin operations at Texas City, finally agreed to pay a fixed price of 48½¢ per pound, to match low British smelting charges for five years, and to take responsibility for the ores in the Chilean ports of Arica or Antofagasta. Through hard bargaining that even the RFC’s own historian conceded meant “not standing as a neighborly supporter of Bolivia in its hour of economic distress,” U.S. planners were purchasing a good percentage of the tin available to the Allies at less than half of the World War I price.56
For Great Britain, this arrangement was little short of a catastrophe on a number of levels. Patiño now argued that unless the British matched the U.S. price, he would break his long-term contract with them and sell to the RFC. At one point, he even threatened to enter the bidding to construct the U.S. smelter himself. Although the British were unable to forestall the U.S. contract with Bolivia, they attempted to end U.S. involvement by agreeing to purchase all Bolivian tin production for the five years after the U.S. deal expired.57 Naturally, Peñaranda and the tin barons refused, hoping to keep Anglo-American competition alive for the foreseeable future.
Pearl Harbor and the Japanese offensive in Southeast Asia changed everything. As Japanese forces overran British Malaya and the Dutch East Indies, world tin markets were thrown into chaos. Both the Allies’ main sources of tin concentrates and much of the world’s smelting capacity were captured. The British and Dutch, anticipating Hitler’s onslaught in Europe, had shifted much of their smelting capacity to Malaya and the East Indies, placing it directly in the path of the advancing Japanese. More than 70 percent of the world’s tin production (and an even higher percentage of its smelting capacity) rapidly fell into Axis hands, and U.S. leaders faced the unhappy prospect of entering the war with no viable source of either raw tin concentrates or processed tin plate. As precarious as the situation was for the Allies, Peñaranda and the tin barons seemed to have an unprecedented opportunity to become virtually the only source of tin for the Allied war machine.58
It did not take long for Patiño to recognize the implications. With the ITC’s production control schedule set to expire at the end of 1941, the British requested a renewal on favorable terms. For the Bolivians, letting Great Britain, which would remain almost exclusively a consumer for the duration of the war, use the ITC to establish a low tin price seemed foolish. Instead, the Bolivian government and tin producers sought the freedom to negotiate major price increases with the United States and Great Britain in 1942. Therefore, Patiño, chafing under British sterling exchange restrictions, refused to sign the ITC renewal. What he apparently did not consider was that by spurning the ITC, he was removing the only impediment to the creation of an Anglo-American alliance based on their mutual interest in suppressing the price of the tin they consumed. Whitehall, now demonstrating “exceptional bitterness,” proposed a “common policy” to Washington to “prevent any attempt at blackmailing tactics.” Although Patiño eventually did sign the renewal (only to see it voided soon thereafter by the Japanese invasion of Malaya and the Dutch East Indies), the damage had been done, and the cartel would never again exert the authority it once had. In the view of political scientist Laurence Whitehead, by facilitating an alliance between Great Britain and the United States, Patiño and the tin barons had, however inadvertently, “shifted” market control “decisively” from the “rosca to the U.S. government.”59
This was not immediately apparent, however. Peñaranda, Aramayo, and Hochschild wasted no time in requesting that the 1942 base price for tin concentrates be set at 65¢ per pound. Hochschild, whom U.S. diplomats described as “no shrinking violet in negotiations,” claimed that all of his mines except Colquiri were operating at a loss at the 1941 price and noted that the RFC had more than doubled its purchase price for lead imports.60 Nonetheless, the British, who were committed to pay Patiño whatever rate Washington agreed to pay Aramayo and Hochschild, could not “see why Americans or we should submit to Bolivian blackmail” since “the Bolivians are entirely dependent on U.S. and UK markets for their one vital export.” Whitehall urged the Roosevelt administration not to increase the price at all. Ultimately, the tin barons agreed to accept 60¢ per pound until the middle of 1943, and Peñaranda agreed not to place new taxes or restrictions on the tin barons.61
When the tin contract came up for renewal in June 1943, the Bolivians demanded no less than 70¢ per pound but found their U.S. counterparts intransigent. Not only had the “shortsighted and avaricious” Peñaranda, in clear violation of the old contract, imposed new taxes on the tin producers and demanded a higher percentage of their foreign exchange, but the producers themselves had also violated the contract, by shipping the United States excessive amounts of low-grade ores and concentrates. U.S. planners therefore insisted on maintaining the current price for another year. The stalemate dragged on until December 1943, when Villarroel ousted Peñaranda from power. Because the United States now possessed a tin stockpile “adequate” for the next two years of war and the army was “not greatly concerned [about the supply of tin] at this time,” the Department of State recommended that negotiations be suspended.62
Villarroel