The French began to seize American ships trading with their British enemies and refused to receive a new United States minister when he arrived in Paris in December 1796. In his annual message to Congress at the close of 1797, President John Adams reported on France’s refusal to negotiate and spoke of the need "to place our country in a suitable posture of defense." In April 1798, President Adams informed Congress of the "XYZ Affair", in which French agents demanded a large bribe for the restoration of relations with the United States.
The French inflicted substantial losses on American shipping. Secretary of State Timothy Pickering reported to Congress on June 21, 1797 that the French had captured 316 American merchant ships in the previous eleven months. The hostilities caused insurance rates on American shipping to increase at least 500 percent, as French marauders cruised the length of the U.S. Atlantic seaboard virtually unopposed. The administration had no warships to combat them; the last had been sold off in 1785. The United States possessed only a flotilla of revenue cutters and some neglected coastal forts.
Increased depredations by privateers from Revolutionary France required the United States Navy to protect the expanding merchant shipping of the United States. The United States Congress authorized the President to acquire, arm, and man no more than twelve vessels, of up to twenty-two guns each. Under the terms of this act, several vessels were purchased and converted into ships of war.
July 7, 1798, when Congress rescinded treaties with France, can be considered a semi-official beginning of the Quasi-War. The act was followed two days later with Congressional authorization to attack French vessels.
Of all of the vessels operating under command of the U.S. Navy, only one vessel was captured by—and later recaptured from—French forces: USS Retaliation. Retaliation was the captured privateer La Croyable, recently purchased by the U.S. Navy. Retaliation departed Norfolk on October 28, 1798, with Montezuma and Norfolk and cruised in the West Indies protecting American commerce. On November 20, the French frigates L’Insurgente and Volontaire overtook Retaliation while her consorts were away on a chase and forced commanding officer Lieutenant William Bainbridge to surrender the out-gunned schooner. However, Montezuma and Norfolk escaped after Bainbridge convinced the senior French commander that those American warships were too powerful for his frigates and induced him to abandon the chase. Renamed Magicienne by the French, the schooner again came into American hands on June 28, when a broadside from USS Merrimack forced her to haul down her colors.
Revenue cutters in the service of the Revenue-Marine, predecessor of the Coast Guard, also assisted in capturing two others. The cutter USRC Pickering, commanded by Edward Preble, made two cruises to the West Indies and captured ten prizes, one of which carried 19 guns throwing 150 pounds of iron compared to Pickering’s 14 guns and total iron weight of only 56 pounds, and was manned by some 250 sailors, more than three times Pickering’s strength.
Sources differ with regards to American losses. One contends that by the war's end in 1800, the French had seized over two thousand American merchant vessels. Another claims that the United States lost only one. (This and similar discrepancies may be explained if one is counting naval losses and another merchant ships.)
Although they were fighting the same enemy, the Royal Navy and the United States Navy did not cooperate operationally, nor did they share operational plans or come to mutual understandings about deployment of their forces. The British did sell the American government naval stores and munitions. In addition, the two navies shared a system of signals by which each could recognize the other’s warships at sea and allowed merchantmen of their respective nations to join their convoys.