The crisis for the Woodrow Wilson administration came in February 1915, when the Germans declared a war zone around the British Isles in order to prosecute an unrestricted submarine blockade. The Germans warned that the British use of neutral flags to disguise their merchant ships placed all shipping in the vicinity in peril. The British had imposed a blockade on Germany at the war's outbreak, and the war zone was an attempt by the Germans to affect British imports similarly.
The problem for the Germans lay in the limitations of the submarine, their only feasible choice of a weapon to impose a blockade. Their fleet, while large, was outnumbered by the British and unlikely to win a battle between the two. The recent defeat on 24 January 1915 of a small German squadron by a slightly superior British one at the battle of Dogger Bank seemed to demonstrate the proof of this situation. The submarine, however, could evade superior British surface forces using its ability to travel submerged. This advantage came at a cost. Submarines were small, slower than many small surface ships such as cruisers and destroyers, and unarmoured. Nor did they carry much heavy weaponry, at best a single gun. Their weapon was the torpedo.
Under the rules of naval warfare, ships en route to a blockaded country could be stopped by warships and searched. If carrying "contraband", they could be seized or sunk. However, merchant ships were allowed to be armed, although the British did not have enough guns to arm all that many. So there was some risk for a submarine trying to stop a merchant ship. The captain had to decide the likelihood of it carrying a large enough gun manned by an efficient crew that could sink his vessel. Furthermore, in November 1914, the British had begun employing Q-ships, merchant vessels turned into warships specifically intended to decoy German submarines. As of February 1915, the Q-ships hadn't actually sunk a submarine, but the threat was there.
In these circumstances, the German declaration made some practical sense. The British had already made their own adjustments to the London Declaration of 1909, an adjustment the Wilson administration had accepted. Why should they not also agree to a German adjustment of the rules governing stopping merchant ships? The American merchant fleet did not play a substantial role in American commerce, as only 10 percent of American trade was carried in American vessels. This would not stop Woodrow Wilson from allowing the German declaration to determine the broad direction of American foreign policy in response to the war.