President of Palau and President of Taiwan at a dinner. [Image: Official Photo by Wang Yu Ching / Office of the President of Taiwan / Flickr (CC BY 2.0)]

Palau’s Security and Economic Needs Create Opportunities for Further US- Taiwan Security Cooperation

The Pacific Taiwan Asia

The pacific nation of Palau, with a population of 18,000, endured the economic impact of China's tourism sanction in 2017, and later COVID-19. However, Palau finds new opportunities in US Indo-Pacific Strategy planning. Chinese tourists once dominated the Palauan economy, with visitors from China skyrocketing from 634 in 2008 to 91,174 in 2015. Most of the tourists came as state travel agency-arranged group tours. However, in 2017, Beijing banned the state travel agencies from organizing trips to Palau because of Palau’s official diplomatic relations with Taiwan. The Czech Republic faced similar economic censure from China when the Czech Senate President Milos Vystrcil ignored Chinese warning and a Czech Senate delegation visited Taiwan in 2020.

Palau’s economy focuses on tourism and foreign aid. Tourism helped employ 20% of the workforce in Palau and generated nearly 43% of the gross national product pre-COVID-19. United States government grants constitute 25% of Palau government expenditure in 2019, with 13% from the Compact of Free Association Agreement. The COVID-19 pandemic and the accompanying travel restrictions shrank the Palauan economy by 8.7% and 19.7% in 2020 and 2021 respectively. In fiscal year 2021, Palau lost 1,245 jobs, but this employment performance is less dire than the initial projection of 3,100 job loss.

However, with help from the United States, Taiwan, Japan, and the Asia Development Bank, the Palauan economy looks to make a comeback in 2022. Palau is also expecting closer security ties with the United States and continued Taiwanese development support can also bring more economic benefits. For example, in October this year, the United States and Taiwan teamed up with the Grameen Foundation to launch the Building Economic Inclusion via the Blue Economy (BELUU) program, which aims to increase the market participation of women entrepreneurs in Taiwan’s four pacific diplomatic allies, Palau, Nauru, Tuvalu, and the Republic of the Marshall Islands.

US Ambassador to Palau John Hennesey-Niland and Palauan President Surangel Whipps Jr. traveled to Taiwan in 2021. Taiwan Vice President William Lai made a visit to Palau in November 2022. Furthermore, the Palauan government welcomed the Department of Defense’s recent announcement as a candidate for the next US military facility in the Pacific. The Palauan government believes a permanent US military presence would not only bring economic opportunities, but the presence of United States military facility that accommodates permanent US Coast Guard operations in the country will also enhance local anti-Illegal, Unregulated and Unregistered (IUU) fishing activities.

Overall, Palau’s firm support for Taiwan, its willingness to foster deeper security ties with the US, and its proximity to Taiwan, made the island nation a secure and convenient midpoint for potential US – Taiwan security cooperation.

Kai-chun Wang is a research intern at the East-West Center in Washington. He is a second-year Master’s candidate at the Johns Hopkins University, School of Advanced International Studies, with a concentration in Strategic Studies.