Geopolitical Tensions in Palau: A Struggle for Sovereignty and Stability

Mon Nov 24 2025 13:31:35 GMT+0200 (Eastern European Standard Time)

Palau faces significant pressures from China and the United States as geopolitical tensions rise in the Pacific. The island nation navigates diplomatic challenges while relying on its tourism sector and national security strategies.

In the heart of the Pacific, Palau finds itself grappling with the consequences of geopolitical maneuvers between China and the United States. With dwindling Chinese tourism, rising military presence, and connections to Taiwan, the tiny nation of under 20,000 people is navigating a complex diplomatic landscape that threatens its sovereignty and economic stability. Amidst this backdrop, local leaders express concerns over foreign investments, potential crime influences, and the risk of becoming a pawn in a larger power struggle.

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.

The geopolitical power struggle between China, Taiwan, and the US is cascading down into the daily lives of this tiny nation. 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.

Tourism is just one part of China's alleged playbook. Beijing has also been trying to strengthen relationships with local leaders: Palauan officials say they have repeatedly been invited to Beijing for visits. In the process, they are grappling with allegations of Chinese crime syndicates exploiting Palau’s lack of diplomatic ties to conduct illicit operations in the nation.

As tensions rise, the future of Palau seems to be precariously balanced between maintaining its diplomatic ties with Taiwan, managing foreign investments, and addressing the concerns of its citizens as they navigate their uncertain geopolitical landscape.