Neutrality in wartime is the ultimate assertion of national sovereignty, but it is much less clear what neutrality means in peacetime. However, in the Cold War confrontation, the United States saw neutral countries as potential loopholes through which the Soviet bloc might obtain advanced Western technology. As a consequence, American economic warfare against the Soviet bloc represented a challenge to the governments of small neutral countries such as Ireland. During the Second World War, Ireland had come under considerable pressure from both Britain and the United States to abandon its neutrality which those countries maintained favoured the Axis powers. However, the Irish government remained steadfastly committed to neutrality, because of the highly symbolic nature of this policy as an expression of the country's struggle to achieve full sovereignty from Britain in the inter-war period. At the same time, Irish neutrality was primarily pragmatic. In contrast to other wartime neutrals, Ireland was virtually defenceless owing to a lack of strong armed forces and air defences, but a different policy might have divided the country, potentially leading to a renewal of the civil strife of the 1920s. As a consequence, Ireland relied on the government's able diplomacy to maintain neutrality by placating both sides of the conflict.

While other small Western European countries such as Belgium, Denmark, the Netherlands and Norway decided to abandon their traditional neutrality in favour of Western economic co-operation and integration in the immediate post-war period, Ireland continued to pursue an isolationist economic policy regime.