structural:expansion, quality:corruption
Removal from command

Within weeks of the Chinese attack, MacArthur was forced to retreat from North Korea. Seoul fell in January 1951, and both Truman and MacArthur were forced to contemplate the prospect of abandoning Korea entirely. European countries did not share MacArthur's world view, distrusted his judgment, and were afraid that he might use his stature and influence with the American public to re-focus American policy away from Europe and towards Asia. They were concerned that this might lead to a major war with China, possibly involving nuclear weapons. Since in February 1950 the Soviet Union and China had signed a defensive alliance committing each to go to war if the other party was attacked, the possibility that an American attack on China would cause World War III was considered to be very real at the time. In a visit to the United States in December 1950, the British prime minister, Clement Attlee, had raised the fears of the British and other European governments that "General MacArthur was running the show".

Under Ridgway's command, the Eighth Army pressed north again in January. He inflicted heavy casualties on the Chinese, recaptured Seoul in March 1951, and pushed on to the 38th Parallel. With the improved military situation, Truman now saw the opportunity to offer a negotiated peace but, on 24 March, MacArthur called upon China to admit that it had been defeated, simultaneously challenging both the Chinese and his own superiors. Truman's proposed announcement was shelved.

On 5 April, Representative Joseph William Martin Jr., the Republican leader in the House of Representatives, read aloud on the floor of the House a letter from MacArthur critical of Truman's Europe-first policy and limited-war strategy. The letter concluded with:

It seems strangely difficult for some to realize that here in Asia is where the communist conspirators have elected to make their play for global conquest, and that we have joined the issue thus raised on the battlefield; that here we fight Europe's war with arms while the diplomats there still fight it with words; that if we lose the war to communism in Asia the fall of Europe is inevitable, win it and Europe most probably would avoid war and yet preserve freedom. As you pointed out, we must win. There is no substitute for victory.

In March 1951, secret United States intercepts of diplomatic dispatches disclosed clandestine conversations from Spanish and Portuguese diplomats in Tokyo embassies to their home countries in which they claimed that MacArthur expressed confidence to them that he would succeed in "disposing of the Chinese Communist question" once and for all. This conversation log did not record MacArthur saying this but Spanish and Portuguese diplomats claiming that MacArthur said that. When these alleged claims from the diplomats came to the attention of President Truman, he was enraged to learn that MacArthur was supposedly not only trying to increase public support for his position on conducting the war but had secretly informed foreign governments that he planned to initiate actions that were counter to United States policy. The President was unable to act immediately since he could not afford to reveal the existence of the intercepts and because of MacArthur's popularity with the public and political support in Congress. However, following the release on 5 April by Representative Martin of MacArthur's letter, Truman concluded he could relieve MacArthur of his commands without incurring unacceptable political damage.

Truman summoned Secretary of Defense George Marshall, Chairman of the Joint Chiefs Omar Bradley, Secretary of State Dean Acheson and Averell Harriman to discuss what to do about MacArthur. They concurred MacArthur should be relieved of his command but made no recommendation to do so. Although they felt that it was correct "from a purely military point of view", they were aware that there were important political considerations as well. Truman and Acheson agreed that MacArthur was insubordinate, but the Joint Chiefs avoided any suggestion of this. Insubordination was a military offense, and MacArthur could have requested a public court martial similar to that of Billy Mitchell. The outcome of such a trial was uncertain, and it might well have found him not guilty and ordered his reinstatement. The Joint Chiefs agreed that there was "little evidence that General MacArthur had ever failed to carry out a direct order of the Joint Chiefs or acted in opposition to an order". "In point of fact", Bradley insisted, "MacArthur had stretched but not legally violated any JCS directives. He had violated the President's 6 December directive, relayed to him by the JCS, but this did not constitute violation of a JCS order." Truman ordered MacArthur's relief by Ridgway, and the order went out on 10 April with Bradley's signature.

In a 3 December 1973 article in Time magazine, Truman was quoted as saying in the early 1960s:

I fired him because he wouldn't respect the authority of the President. I didn't fire him because he was a dumb son of a bitch, although he was, but that's not against the law for generals. If it was, half to three-quarters of them would be in jail.

The relief of the famous general by the unpopular politician created a storm of public controversy. Polls showed that the majority of the public disapproved of the decision to relieve MacArthur. By February 1952, almost nine months later, Truman's approval rating had fallen to 22 percent. As of 2023, that remains the lowest Gallup Poll approval rating recorded by any serving president. As the increasingly unpopular war in Korea dragged on, Truman's administration was beset with a series of corruption scandals, and he eventually decided not to run for re-election. Beginning on 3 May 1951, a Joint Senate Committee—chaired by Democrat Richard Russell Jr. —investigated MacArthur's removal. It concluded that "the removal of General MacArthur was within the constitutional powers of the President but the circumstances were a shock to national pride."