US could lose strategic Pacific islands to China over blocked funding

Republicans are withholding legislation in exchange for immigration reform – Benjamin Lowy/Getty

United States defence officials have warned the US may lose ground to China if it does not grant funding to vital island nations used by the military in the Pacific.

It comes after the leaders of Palau, the Marshall Islands and the Federated States of Micronesia (FSM) said that without $2.3billion (£2.3billion) held up in Congress, they are coming under pressure to turn to China for financial assistance.

The blocked funding coincides with a concerted drive by Beijing to shift the balance of power in the Indo-Pacific region in its favour, including over the sensitive issue of Taiwan’s sovereignty.

The funding package in Congress faces the same issue as money for Ukraine and Israel: Republicans are withholding legislation in exchange for immigration reform.

In a joint letter in February, the island nations’ three leaders warned the delay had “generated uncertainty” among their populations and “resulted in undesirable opportunities for economic exploitation by competitive political actors active in the Pacific”.

Their countries are closely linked to the United States through treaties known as Compacts of Free Association (Cofa) that grant the Pentagon virtually unrestricted military access in exchange for a security guarantee and benefits for their citizens.

Jedidiah Royal, the Pentagon’s deputy for Indo-Pacific policy, told Defence News: “We’re already late in getting this done.”

Antony Blinken holds talks with the presidents of Palau, Micronesia and the Marshall Islands – SARAH SILBIGER/AFP

Although small in land mass and with a combined population of about 100,000 people, the Cofa states are crucial to the US remaining a Pacific power.

Between them they offer strategic access to an area of the Pacific that is bigger than continental US, forming part of the “second island chain” that the US military views as a critical line of defence against Chinese advances across the Pacific.

Kathryn Paik, who until 2023 led the National Security Council’s portfolio for the region, told Defence News: “They’ve been able to rely on that assumption of presence and access for all of their planning.

“Every contingency you can imagine in the Pacific — Korea, Taiwan — everything depends on [those] assumptions of defence access.”

The US is already building a radar installation on Palau.

However, Surangel Whipps, the Palau president, told NBC that the funding block had made China look like a more credible partner to some on the tourist-dependent island of

18,000, which is still suffering the economic fallout from the pandemic.

“It creates the opportunity for the CCP really to erode Palauan confidence in our relationship with the United States,” President Whipps told the news channel, referring to China’s ruling Chinese Communist Party.

The security compacts were successfully renewed for another 20 years in May 2023 and were supposed to be implemented in October but the final funding sign-off has since become entangled in party political disputes over a wider emergency supplemental budget.

It has been blocked by Republicans who have insisted the overall emergency budget must also address security at the US border with Mexico.

Indo-Pacific experts have decried the “dysfunctional” Washington politics that have created the funding block as “short-sighted” and harmful to US national interests.

Drew Thompson, a former US defence official and now senior visiting research fellow at the Lee Kuan Yew School of Public Policy in Singapore, said: “Congress is shortsighted for not funding these things but really the Biden administration is at fault for not making the case to Congress, not prioritising this.”

“These Cofa agreements are no-brainers,” he told the Telegraph, adding that failure to approve the Cofa budget would lead to “diminished US influence,” not only in its competition with China but in multilateral organisations like the United Nations, where small and major nations have equal votes.

Dr Euan Graham, a senior analyst at the Australian Strategic Policy Institute, said: “It’s a dereliction of duty from the US Congress if they don’t recognise the national interest here.

“The importance of the Pacific island compact states simply in positional terms is continuing to grow so if the US wants areas where it can disperse its forces in a conflict and potentially surge reinforcements through then the whole reason for the compacts is a recognition that they are important staging posts.”

One near-term impact of a failure to sign off the new deals could be a decision by Palau and FSM to switch diplomatic recognition from Taiwan to China if Beijing makes alternative financial offers, he said.

The consequences of such a shift are already being seen in Kiribati, which swapped allegiance in 2019.

On Monday, the US cautioned the atoll nation against assistance from Chinese security forces after Reuters reported that Chinese police are working there.

“Doing so risks fuelling regional and international tensions,” said a state department spokesman.

The Solomon Islands – which also changed diplomatic recognition to China in 2019 – has since signed a secretive security pact with Beijing that has raised fears it could lead to the creation of a Chinese naval base within easy reach of the Australian coastline.

Hilda Heine, the president of the Marshall Islands, has made similar warnings about the region, where the Ronald Reagan Ballistic Missile Defence Test Site is located.

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