Palau, a nation of fewer than 20,000 people scattered across pristine Pacific islands, has found itself at the intersection of intensifying U.S.–China tensions. Its diplomatic loyalty to Taiwan, one of the few remaining states to formally recognise Taipei, has long made it a target of Beijing’s pressure campaign. But in recent months, the stakes have risen sharply, driven by land-ownership disputes, proposed U.S. military radar installations and China’s expanding influence across the Pacific.

Officials in Palau say Beijing has quietly pursued strategic land acquisitions through private Chinese investors, raising concerns about potential dual-use activity. Some parcels in question sit near key infrastructure and coastal access points. At the same time, the U.S. is moving ahead with plans to build a powerful over-the-horizon radar system in Palau, part of Washington’s wider Indo-Pacific deterrence strategy against Chinese military expansion.

For Palauans, that radar is a symbolic and practical test of their long-standing defence compact with the U.S., which grants Washington military access in exchange for security guarantees. But it has also fuelled unease over environmental impact, local sovereignty and whether Palau could become a potential target in a regional conflict.

Adding to the tension is Palau’s unwavering recognition of Taiwan. Beijing has intensified diplomatic and economic pressure on Palau to break ties, including restricting tourism and investment. For an island economy heavily reliant on visitors, the downturn has been felt deeply. But Palau’s leaders insist they will not abandon Taipei, framing the decision as a matter of democratic principle.

The U.S., for its part, is increasing aid and infrastructure spending to reassure Palau that its loyalty is strategically valued. Washington sees the islands as a pivotal node in a contested region where influence can shift rapidly, and where even small nations can tip the balance of access, alliances and military positioning.

As great-power rivalry deepens across the Indo-Pacific, Palau’s future looks increasingly shaped by forces far beyond its shores. The nation is now navigating a delicate diplomatic path, balancing U.S. security promises, Chinese pressure and its own determination to maintain sovereignty in a region where few decisions remain purely local.