In 1793, the new French republican government executed Louis XVI, leading Britain to join the alliance against radical France.  The new American government was confronted with a difficult position: many Americans supported the French republic, but the alliance of 1778 had been with Louis, not the Jacobins.  The overwhelming American opinion was a distrust of both France and Britain and preferred to, as Jay advised in the 1780s, "to observe a proper distance towards all nations" (Combs, 18).  The British found the American position of neutrality to be harmful in the Anglo-French war, and they showed their disapproval through use of their cruisers (Perkins, 2).

Over the previous decade, the outstanding issues of the 1783 Treaty of Paris and American independence had been building up tension with Britain.  The Canadian boundary was not entirely clear to involved parties, and even where it was, Britain kept a strong presence in many parts of the officially American Northwest Territory, and many Americans held British intrigue accountable for inciting Indian wars in the West. In the East, several Southerners were bitter about a lack of compensation for slaves abducted during the war, and the British creditors were in fits over the number of Americans refusing to honor pre-war debts.

Commercial interests also played a hand.  Before the treaty, tension between the United States and Britain mounted over terms of trade within the New World.  Americans expected freedom from the smothering Navigation Acts, but their hopes that independence "would bring liberation from the restrictions of the British mercantilist system and would open on most favorable terms the markets of the world" were not even close to realized: while America was more free to trade with foreign nations, trade with British colonies became more difficult (Bemis, 28). The United States was heavily reliant on Britain for trade and safety on the seas, it could not risk bad relations.  As Fisher Ames wrote, "peace with that power is to be sought most earnestly—as all our floating capital wd soon fall a sacrifice" without it (Perkins, 14).  As of 1790, British trade accounted for approximately ninety per cent of import duties.  Bemis surmises that if "Anglo-American commerce was indispensable to British prosperity in 1789 it was vitally necessary for the national existence of the United States" (Bemis, 49).

Many believed a war to be at hand, only eleven years following the peace treaties of the revolution.  America had hardly recovered from the previous war and could not afford to fight again against one of the vying world superpowers.  With this in mind, President Washington, under advice from the then-Secretary-of-the-Treasury Alexander Hamilton, sent former Chief Justice John Jay to negotiate an agreement with Britain.