Although domestic affairs dominated the Arthur administration, his presidency is remembered for having taken the crucial first steps in building a modern navy. Known as the "Father of the Steel Navy," Arthur sought the construction of steam-powered steel cruisers, steel rams, and steel-clad gunboats. With certain exceptions, such as the shipyards in Norfolk, Virginia, he also moved decisively to curb corruption and incompetency within the Navy. Under Secretary of the Navy William E. Chandler, the Naval War College was established in Newport, Rhode Island, and the Office of Naval Intelligence was created. In one sense, the results were disappointing, not going beyond the construction of three cruisers and a dispatch boat. Even in 1889, naval coaling stations were limited to Honolulu, Samoa, and Pichilingue in Lower California.

His secretary of state, James G. Blaine, a holdover from the Garfield administration, had pushed for more direct involvement in Latin America, advocating the construction of a canal across the Isthmus of Panama. Blaine's successor, Frederick Theodore Frelinghuysen, negotiated a treaty with Nicaragua that ceded a stretch of land to the United States for construction of the waterway. However, Congress refused to ratify this treaty with Nicaragua because the agreement violated an existing treaty with Great Britain, in which each nation pledged not to obtain exclusive control over any canal built through the Isthmus of Panama. President Grover Cleveland, Arthur's successor, later withdrew the treaty. Most importantly, Frelinghuysen negotiated a number of reciprocal treaties with Mexico, Santo Domingo, and Spain, the latter centering exclusively on Cuba and Puerto Rico. All met significant opposition from special interests such as sugar refiners and wool producers and hence lacked crucial Senate support. These treaties placed Arthur at odds with protectionist interests in the Republican Party and were among the reasons why he failed to gain the support of party leaders for a second term.