In 1778, the US signed a treaty of alliance that "guaranteed" French possessions in America. When the new Republic of France sent a minister to the US, he was received but Washington decided that the old alliance was not applicable to an offensive war. Therefore, he proclaimed that the United States would be neutral in the current war between France and Great Britain. The Democratic-Republicans did not agree, feeling that the US should side with France. However, the Federalists agreed with Washington, seeing the need for neutrality at this early stage of America's development.
France opened its ports in the West Indies to neutral trade. However, England took issue with this. The "Rule of 1756" held that the US should not have trade with France while at war because it had not had trade with France while at peace. Therefore, England began seizing American ships in the West Indies and impressing sailors into service. In response, the Democratic-Republicans tried to force the country into war with England.
Washington sent John Jay to England to try and abate the war. This resulted in Jays Treaty (1794) which was strenuously opposed by the Democratic-Republicans. Further, France was offended and would not accept the American minister. In 1795, the US also made its first treaty with Spain, in which the country agreed to open the Mississippi to trade.
Washington decided to retire after two terms as president. A key feature of his "Farewell Address" was the need to avoid entangling relationships with other countries. His successor, John Adams, sent in three commissioners to France to try and create a new treaty. This was known as the X, Y, Z mission because when Adams reported the mission to Congress, he suppressed the names of the three agents and instead called them Mr. X, Mr. Y, and Mr. Z. The French made three demands: America must apologize for comments that Adams' made against the conduct of France, it must pay tribute to France, and each Director on the French Directory (the name given the five men who governed France).
Due to upset and excitement over these events at home, the Navy Department was created in 1798 and a naval war with France began. Due to the fact that the Democratic Republicans had supported France, there was sentiment against them which resulted in Adams' passage of the Alien and Sedition Acts. Jefferson met these with the Kentucky and Virginia Resolutions. Further, to help pay for the war, taxes were increased and a direct tax were instituted. In 1800, France sent word that another group of ministers would be received.
In 1800, Spain gave Louisiana to France. Immediately, the Spanish official in New Orleans stopped all trade with American merchants. They called against this. To avoid war, Jefferson approached France about purchasing New Orleans and West Florida. However, Napoleon who wanted to pay for his war with England sold all of Louisiana to the US for $15 million.
Thomas Jefferson was elected president in 1800 against Adams and the federalists.