Strategic Struggles: Palau's Geopolitical Quandary Amidst Chinese and US Influences

Mon Nov 24 2025 16:36:09 GMT+0200 (Eastern European Standard Time)

As Palau navigates the turbulent waters of international relations, its strategic location has attracted attention from both China and the United States, revealing the complexities of its diplomatic choices, tourism dependency, and local sentiments.

Palau, a small Pacific nation, finds itself at the crossroads of geopolitical tensions between China and the US. With dwindling tourism from China and growing military presence from the US, the island faces challenges that threaten its diplomatic ties with Taiwan and shatter its once-thriving economy. As external powers battle for influence, locals express concern over the implications for their society and environment.

The air above Palau's pristine waters smells of salt and breadfruit, and on calm mornings in Koror, Palau's commercial centre, the whirr of dive boat engines echoes across the bay.

A few years ago, those boats were filled with tourists – many from China – drawn to Palau's lagoons and limestone caves. Hotels were full, restaurants bustling, and fishermen could barely keep up with demand. But that is no more.

The boom – and the abrupt collapse – was no accident. Between 2015 and 2017, Chinese tourists made up around half of its visitors. Then, in 2017, Beijing reportedly ordered tour operators to stop selling packages to Palau, slashing the main source of tourism to the islands at the time.

I actually bought new boats to accommodate the sudden increase of tourists, said a dive shop owner in Koror. But after the tourism peak, he said, these boats had been sitting idle in the bay and it took them years just to make back the money they spent.

The message was clear, Palauan officials allege. They say that China had used its vast outbound tourism market as part of a broader campaign to try to peel Palau away from recognising Taiwan - and into Beijing's orbit.

Palau is one of only a dozen nations that still recognise Taiwan as a sovereign state. This challenges a key pillar of China's foreign policy, the one China principle, in which Beijing asserts sovereignty over Taiwan.

But it's not just about a diplomatic tug of war.

Palau's location makes it a desirable target for influence from the world's biggest powers. It sits on the so-called Second Island Chain – a string of outposts the US sees as crucial to containing China's military expansion and responding to any aggression in the western Pacific.

Palau and the US have a long history of partnership: before its independence in 1994, Palau was a US-administered territory.

Under an agreement known as the Compact of Free Association, Palau gives the US exclusive military access in exchange for Washington's extensive aid, including Palauan citizens' ability to live and work freely in the US.

Working under the terms of the Compact, the US is now strengthening its own military footprint in the archipelago.

This geopolitical power struggle between China, Taiwan, and the US is cascading down into the daily lives of this tiny nation of fewer than 20,000 people.

No matter what we do, Palau is going to be the centre of any military activity because of our location, Palau's President, Surangel Whipps Jr. told the BBC.

Palau's relationship with Taiwan runs deep.

When Palau became independent in 1994, Taiwan moved fast to secure a diplomatic ally, according to Cheng-Cheng Li, an assistant professor at National Dong Hwa University in Hualien, Taiwan, who has conducted extensive research on Taiwan-Palau relations.

Taiwan's assistance to it has been hands-on: agricultural experts working side by side with locals, medical teams in small clinics, funding for local entrepreneurs, and inviting students to Taiwan on scholarships.

For a country with a small population where community-based service plays a central role, Taiwan has been described as a reliable partner and a trusted friend by many Palauan officials.

Still, Taiwan has reason to worry. In recent years, China has peeled away several of its former allies. In the Pacific region alone, the Solomon Islands, Kiribati, and Nauru have severed their diplomatic ties with it and switched to Beijing since 2019.

Beijing sees the democratically governed island of Taiwan as a breakaway province that will, eventually, be part of the country, and has not ruled out the use of force to achieve this.

Controlling Taiwan is essential to Chinese leader Xi Jinping's goal of reversing what he called China's century of humiliation by colonial powers, according to analysts.

Both the US and Taiwan are paranoid and jumpy about Palau switching, said Graeme Smith, a senior fellow at the Australian National University. They'll put a lot of resources into making sure it doesn't happen.

Officials in both Palau and Taiwan say Beijing has pulled on a range of levers to influence Palau's diplomatic position.

After he took office in 2021, Palau's president publicly claimed that China offered a million tourists in exchange for Palau to this end. He refused.

Then in 2024, China's foreign ministry issued a safety alert, advising Chinese nationals to exercise caution when travelling to Palau.

If China uses tourism as a weapon, then it's an unstable market that we shouldn't depend on, President Whipps Jr. told the BBC. If China wants a relationship with Palau, they can, but they cannot tell us we cannot have a relationship with Taiwan.

In response to growing military activities around Taiwan, the US has ramped up its military presence in Palau, upgrading airstrips and planning expansions of critical military infrastructure like the Malakal Harbour. Documents indicate that Chinese enterprises have leased land near US military sites, raising alarms about potential espionage or military uses.

The complex interplay among China, Taiwan, and the US in Palau reveals the precarious position of this island nation, caught in the crosshairs of great power rivalry, as its citizens navigate the implications for their future.