On 22 December 1916 Admiral Henning von Holtzendorff, the Chief of the Admiralty Staff of the Imperial German Navy, sent Field Marshal Paul von Hindenburg, the Chief of the General Staff, the last of a series of memos advocating that Germany adopt unrestricted submarine warfare. Unrestricted submarine warfare meant sinking merchant ships without warning. German U-boats were then surfacing in order to check the nationality of merchant ships before opening fire. This was done largely to avoid the problems that would ensue if US citizens were killed.
Holtzendorff argued that Germany had to win the war by autumn 1917 or else it would finish with the exhaustion of all the belligerents, which would mean disaster for Germany. The Italian and French economies had been so weakened by the war that they were able to continue to fight only with British support. The Germans had to break the British economy in order to win the war, and the way to do this was to attack the British merchant fleet. Extra demands were being placed on it because Britain imported much of its food and the 1916 global grain harvest had been poor. This meant that Britain would have to replace imports from Canada and the USA with grain from Argentina, India and especially Australia.
Holtzendorff thought that a destruction of 600,000 tons of merchant shipping per month would reduce British trade ‘by 39% within five months. This would not be bearable’. He admitted that he could not ‘guarantee that a campaign of unrestricted submarine warfare’ would force a British surrender within five months. However, acting in accordance with cruiser rules would mean sinking only 400,000 tons per month, reducing British trade by only 18%, which was not enough. Holtzendorff claimed that this was the actual rate achieved over the two previous weeks. The actual losses, shown in the table below, were a little lower.
The British, however, were concerned even at the level of losses of late 1916. In October, Admiral Sir John Jellicoe, who replaced Admiral Sir Henry Jackson as First Sea Lord, the professional head of the Royal Navy, in late November, warned the Admiralty that the losses of British and neutral merchant ships might by the summer of 1917 reduce imports of food and other necessities to a level that would force the Allies to accept worse peace terms than were justified by the European military situation. Admiral Sir David Beatty, who succeeded Jellicoe as C.-in-C. of the Grand Fleet, said that the danger was ‘jeopardising the fate of the nation and seriously interfering with the successful prosecution of the war.’
Holtzendorff wanted to avoid war with the USA if possible but argued that the risk of it happening should not stop Germany ‘from making use at the decisive moment of a weapon that promises victory.’ He thought that the USA would not be able to replace the lost merchant shipping and that there would be insufficient transports to take US troops to Europe. He expected that the USA would make peace when Britain as it would not be able to do as much damage to Germany as U-boats did to its commerce and would want an early return to economic prosperity.
The decision to launch unrestricted submarine warfare from 1 February 1917 was made at a meeting held on 9 January. Chancellor Theobald von Bethman-Hollweg, who had until then opposed unrestricted submarine warfare, finally agreed to it, commenting it that it was ‘the last card.’
On 1 February 1917 the Germans had 105 U-boats available, with new construction taking their strength to 129 by 1 June. They had at least 120 for the remainder of 1917 and 124 at the end of the year. 
The U-boat campaign was a military success, as shown by the following table:
|British tonnage sunk (excludes fishing vessels)||World tonnage sunk (includes British and foreign fishing vessels|
Source: C. E. Fayle, Seaborne Trade, 3 vols (London: HMSO, 1920), vol. iii, p. 465.
On 16 January Arthur Zimmermann, the German Foreign Minister, sent a telegram to Count Bernstorff, the German ambassador in Washington that he was to forward to Heinrich von Eckhardt, the German minister in Mexico City. Von Eckhardt was to offer the Mexican government an alliance if war broke out between Germany and the USA. The Germans would provide financial aid to Mexico, which would regain the territory that it had lost to the USA in the Mexican-American War of 1846-48 after a victorious war. The Mexicans were also to attempt to persuade Japan to change sides.
The British had destroyed the German cable communications with the rest of the world early in the war. The Germans, however, had access to two neutral cables to the USA: a Swedish one that they had been allowed to use since early in the war; and a US one that Wilson had allowed them to use when he was attempting to mediate between them and the Allies. Both passed through Britain, which could therefore intercept them. The simplicity of American codes and cyphers enabled the British code breakers of Room 40 to break them. They also had a copy of the German diplomatic code book that was captured when Wilhelm Wassmuss, a German agent in Persia, was forced to flee without his baggage. The British and Russians had captured German naval code books in 1914.
On the morning of 17 January Captain Reginald ‘Blinker’ Hall, the Director of Naval Intelligence, was handed a partial translation of the intercepted cable. The code was in a variant of the one captured from Wassmuss and the parts that could not be decoded included details of the terms offered by Germany to Mexico. Showing it to the Americans risked revealing to them that the British were intercepting neutral diplomatic traffic and to the Germans that their diplomatic codes had been broken. Hall, perhaps hoping that the USA might enter the war anyway, sat on the telegram until 5 February, when he showed it to the Foreign Office.
By 10 February British agents had obtained a copy of it from the Mexico City telegraph office. The German legation there used a simpler code than the one used between Berlin and Washington, and the British were able to fully decode it. It could now be passed to the Americans without them realising that the British were intercepting Swedish and US diplomatic cables. The telegram, available online at the Great War Primary Document Archive, read:
Berlin, January 19, 1917
On the first of February we intend to begin submarine warfare unrestricted. In spite of this, it is our intention to endeavor to keep neutral the United States of America.
If this attempt is not successful, we propose an alliance on the following basis with Mexico: That we shall make war together and together make peace. We shall give general financial support, and it is understood that Mexico is to reconquer the lost territory in New Mexico, Texas, and Arizona. The details are left to you for settlement….
You are instructed to inform the President of Mexico of the above in the greatest confidence as soon as it is certain that there will be an outbreak of war with the United States and suggest that the President of Mexico, on his own initiative, should communicate with Japan suggesting adherence at once to this plan; at the same time, offer to mediate between Germany and Japan.
Please call to the attention of the President of Mexico that the employment of ruthless submarine warfare now promises to compel England to make peace in a few months.
(Secretary of State)
Arthur Balfour, the British Foreign Secretary, handed it to Walter Page, the US ambassador to London on 23 February. It was published in the USA on 1 March. A minority of Americans argued that it was a forgery. Hall took steps to prove to that it was genuine, but these proved unnecessary when Zimmermann admitted on 3 March that he had sent it.
Wilson had already decided to ask Congress for permission to arm US merchant ships, which would have almost certainly have resulted in an incident that led to war. The measure was passed overwhelmingly by the House of Representatives but was filibustered out of the Senate. Wilson decided to go ahead anyway. On 20 March, after a number of US merchant ships were sunk by U-boats, he obtained the unanimous consent of his cabinet for a declaration of war.  On 2 April the House of Representatives voted 373 to 50 in favour of war, with the formal declaration coming on 6 April.
The Germans thought that they would have starved Britain into surrender before the USA, which in April 1917 had an army of 213,557 men and 55 aircraft, 51 of them obsolete, could make a decisive difference. However, by the end of the war 1.97 million US troops had been sent to the Western Front, with no troopships being sunk on the way from the USA to Europe. By the summer of 1918 the USA was sending 536,000 tons of supplies per month to France, with a troop or cargo ship leaving every five hours. The USN committed 68 destroyers and 121 submarine chasers to the battle against the U-boats.
This link, to a new exhibit at Arlington National Cemetery marking the 100th anniversary of American involvement in World War I, was kindly pointed out to me by G.P. Cox, writer of the excellent Pacific Paratrooper blog.
 D. Steffen, ‘The Holtzendorff Memorandum of 22 December 1916 and Germany’s Declaration of Unrestricted U-Boat Warfare’, Journal of Military History 68, no. 1 (2004), pp. 215-16.
 A. J. Marder, From the Dreadnought to Scapa Flow; the Royal Navy in the Fisher Era, 1904-1919, 5 vols (London: Oxford University Press, 1961-70). vol. iv, p. 51.
 Steffen, ‘Holtzendorff’, pp. 219-20.
 Ibid., p. 221. This and subsequent quotations are from Holtzendorff’s memo, which is reproduced in Steffen’s paper.
 Ibid., pp. 220-21.
 Ibid., p. 222.
 J. S. Corbett, H. Newbolt, Naval Operations, 5 vols (London: HMSO, 1938). vol. iv, pp. 324-25.
 Steffen, ‘Holtzendorff’, p. 222.
 Marder, From. vol. iv, p. 51.
 P. G. Halpern, A Naval History of World War I (London: UCL Press, 1994), pp. 338-39.
 Ibid., p. 340.
 D. Stevenson, 1914-1918: The History of the First World War (London: Allen Lane, 2004), p. 313.
 C. M. Andrew, Secret Service: The Making of the British Intelligence Community (London: Heinemann, 1985), pp. 107-8.
 Hall was promoted Rear Admiral on 27 April 1917. His nickname resulted from a chronic facial twitch.
 Andrew, Secret, pp. 110-13.
 Stevenson, 1914-1918, p. 317.
 H. H. Herwig, The First World War : Germany and Austria-Hungary, 1914-1918 (London: Arnold, 1997), p. 320.