Diminutive but Consequential: Palau’s Place in the Emerging U.S.-China Competition

The Republic of Palau - an archipelago in the western Pacific - is a country of 180 square

miles and 21,000 people. It has a landmass three-times smaller than that of Greater London,

and a population four hundred and fifty-times lower. However, if Palau is diminutive in scale,

it has an outsized geopolitical significance. In August 2020, then-U.S. Defence Secretary

Mark Esper became the first occupant of that role to visit Palau. Then, on 5 August 2021,

Defence Secretary Lloyd Austin welcomed the President of Palau, Surangel Whipps Jr., to

the Pentagon.

U.S. Defence Secretary Lloyd Austin welcomes the President of Palau, Surangel Whipps Jr., to the Pentagon, 5 August 2021 (U.S. Department of Defense)

It is rare, to say the least, for a country of Palau’s size to receive this degree of high-level

attention from the most powerful state on the face of the planet. However, in the context of

an intensifying struggle between the U.S. and China for dominance in the Pacific, no state in

the region is considered dispensable. For this reason, the two superpowers - combined

population, 1.73 billion - are engaged in a tug-of-war for influence in a country of 21,000

people. 

As of this moment, it is a contest that the U.S. is winning. Palau only gained its

independence from the U.S. in October 1994, having been administered from Washington

D.C. since the Second World War. Moreover, upon its independence, it signed a Compact of

Free Association with the U.S., allowing it to continue using the U.S. dollar and remaining

under the American defence umbrella. (Palau does not have a military of its own.)

In recent years, however, China has attempted to bring Palau into its own orbit. From 2010

onwards, the Chinese government started to actively encourage tourism in Palau, hoping to

foster improved cultural and economic links with its fellow Pacific nation. Consequently, in

2015, 91,000 Chinese tourists visited Palau. Then, in 2017, China suddenly proscribed

package holidays in Palau, attempting to punish the latter for refusing to end its diplomatic

recognition of Taiwan. This may be a blunt and punitive mode of international politics, but

China has had considerable success in whittling down the number of countries that persist in

recognising Taiwan. Indeed, in the last few years alone, China has induced countries such

as El Salvador, Burkina Faso, the Dominican Republic, and, in the Pacific, the Solomon

Islands and Kiribati to switch their diplomatic recognition in its favour, leaving just fifteen

hold-out states.

However, China’s approach has met with little success in Palau. In the country’s 2020

presidential elections, Surangel Whipps Jr., who was born and educated in the U.S.,

prevailed over then-Vice President Raynold Oilouch, who campaigned for closer ties with

China. As such, despite the economic harm that its prohibition of package tourism caused -

54% of the tourists who visited Palau in 2015 were Chinese, and tourism represents 40% of

the country’s G.D.P. - Palau continues to recognise Taiwan rather than the P.R.C.

The tug-of-war between the superpowers for this small island state has outsized geopolitical

implications. If the U.S. prevails, it will strengthen its position in the Second Island Chain,

where it already maintains extensive military facilities, including those in Guam and southern

Japan. According to U.S. military strategy, the Second Island Chain is crucial to curtailing

China’s influence in, and control over, the Pacific. It is an insurance policy, a firewall that will

prevent China from expanding its control further if it ultimately prevails in the contest for the

First Island Chain, which includes Taiwan, the Philippines and Okinawa. In that area, China

has enhanced its power projection capabilities by building artificial islands to host military

facilities, weapons systems and missiles. War games conducted by American defence

analysts have demonstrated that the U.S. could lose a war with China that was fought in the

latter’s immediate neighbourhood, and that China could overrun Taiwan within days or

weeks. The U.S.’ vulnerability in the First Island Chain, as China has grown more powerful,

explains the Trump and Biden administrations’ renewed interest in Palau and, by extension,

in strengthening the Second Island Chain.

The First and Second Island Chains (Defense News)

To this end, the U.S. intends to build a multi-billion dollar ballistic missile radar facility in

Palau, allowing it to monitor air and ground traffic in the region. Moreover, successive

presidents of Palau have explicitly invited the U.S. to establish military facilities on their

country’s territory, offering America the opportunity to add to its existing network of hundreds of bases worldwide. This would help to create what the RAND Corporation has labelled a “power-projection superhighway running through the heart of the North Pacific into Asia”. Thus, even if China were to further solidify its position in the First Island Chain, the U.S. would be able to use its facilities in the Second Island Chain to project its forces into theatres such as the Taiwan Strait and South China Sea.

If any evidence were still needed, then, of the stakes involved in the developing competition

between the U.S. and China, one need look no further than Palau: a country of just 21,000

people considered crucial by two superpowers.