The end of the Marshall Plan began in November 1950, when Chinese armies intervened in the Korean War. Even more than the outbreak of hostilities in June, the Chinese intervention had the most far-reaching impact on the economic and political climate in the United States and on the foreign and domestic policies of the Truman administration. Earlier hopes that the war would end quickly gave way to plans for a long and costly struggle and to fears of Communist aggression in other parts of the world. American policymakers became more conscious of Western Europe's military vulnerability. As the White House laid plans to expand defense expenditures and mobilize the American economy behind the war effort, the Pentagon and the State Department intensified the pressure on European governments to strengthen NATO and bring West Germany into the common defense. Rearmament now had absolute priority in American policy, leading first to the transformation of Marshall aid into defense support and then to the demise of the Marshall Plan altogether.

These developments destabilized both the North Atlantic alliance and the political situation in participating countries. As the pace of rearmament outstripped the rate of economic growth in Western Europe, the price index shot up, the dollar gap widened, and the drain on reserves grew worse. The Europeans became more dependent on American economic assistance, just as priorities in Washington were shifting from Marshall aid to military support.