The United States is quietly waging an economic battle for control of the compact states, three countries in the Pacific Islands that are facing increasing pressure to side with either China or the United States in their growing geopolitical competition in the Pacific Ocean.

As China moves to establish a presence in the Pacific Islands, a large oceanic area in the central Pacific, the United States is moving to strengthen its military and economic controls over these three countries, which consist of islands that have remained under U.S. influence since World War II.

“We have fought for these strategic islands before,” Representative Brad Sherman (D-CA) explained at a congressional hearing last month, referring to U.S. military campaigns against Japan during World War II. “Now we are fighting again, hopefully in a non-lethal battle, and we need to pay attention.”

Since the end of World War II, the United States has played a dominant role in the Pacific Islands. In the decades following the war, U.S. officials administered a large area known as the Trust Territory of the Pacific Islands. There, U.S. operatives organized covert operations against China and tested nuclear weapons, detonating 67 nuclear bombs in the Marshall Islands from 1946 to 1958.

Since the 1980s, the United States has maintained close ties to Palau, the Marshall Islands, and the Federated States of Micronesia, the three countries that emerged from the trust territory. Through a special relationship with each country called a “compact of free association,” the United States has maintained military controls over the islands in exchange for economic assistance.

Currently, U.S. officials are renegotiating the compacts, which include economic provisions that are set to expire this year for the Marshall Islands and the Federated States of Micronesia and next year for Palau.

At the hearing last month, Representative Young Kim (R-CA) emphasized “the importance of renewing the COFA agreements,” meaning the compacts. “Our military installations in these countries are vital logistics hubs for our operations in the Pacific.”

Officials in Washington largely agree that the compact states are critically important to U.S. strategy in the Pacific. As logistics hubs, the islands provide the U.S. military with access to territory, airspace, and sea lanes. U.S. officials favor the islands for their proximity to other U.S. military sites in the region, especially U.S. military bases in Guam.

Keone Nakoa, an official at the Department of Interior, informed Congress at the hearing last month that the compact states are located in a strategically important area that facilitates U.S. operations throughout the entire Pacific Ocean.

“When taken together, the Pacific Islands form a geopolitical bridge east and west from Asia to the Americas, and from Australia in the south to equatorial Micronesia and the Aleutians in the north Pacific,” Nakoa said.

Other officials have argued that U.S. control of the compact states is important for excluding other military forces from the region. These officials emphasize what they call “strategic denial,” an alleged U.S. right to forcefully expel other military forces from the waters around the compact states.

“The agreements prevent our adversaries from exploiting a huge swath of the Pacific Ocean and guarantee the United States a foothold from which to protect its interests,” Representative Ann Wagner (R-MO) explained.

Some island leaders have welcomed these U.S. military powers, going so far as to insist that their countries are part of the U.S. homeland. David Panuelo, the outgoing president of the Federated States of Micronesia, noted in a talk at Georgetown University last year that “the United States regards our country as part of the homeland, and we regard ourselves as part of the homeland.”

What has especially concerned U.S. officials, however, is the possibility that they are losing ground in the region to China. Alarms went off in Washington last year when word leaked that China and the Solomon Islands had created a secret security pact that could lead to the presence of Chinese military forces in the country.

“We told the Solomon Islands leadership that the United States would respond if steps were taken to establish a de facto permanent military presence, power-projection capabilities, or a military installation in the Solomon Islands,” State Department official Daniel Kritenbrink announced in response to the deal.

Last month, outgoing FSM President Panuelo added to the tensions by issuing a letter to the FSM Congress in which he accused China of waging political warfare and grey zone operations against the Federated States of Micronesia. He accused China of committing espionage, gathering military intelligence, seeking economic controls, bribing FSM officials, backing secessionist movements, tracking his movements, and risking war with Taiwan.

“The FSM is an unwilling target of PRC-sponsored Political Warfare and Grey Zone activity,” Panuelo wrote, referring to the People’s Republic of China.

Following the publication of Panuelo’s letter, which was first reported by The Diplomat, Representative Sherman called it “one of the most extraordinary letters I’ve ever seen signed by a head of state,” adding that “this needs to go to every head of state worldwide so that they know what they’re up against.”

Rather than simply warning about China, however, Panuelo was making a calculated political maneuver. After making his accusations against China, he concluded his letter by urging his successors in the FSM government to switch their country’s diplomatic recognition from China to Taiwan. In perhaps his most extraordinary move, Panuelo indicated that Taiwan would pay the Federated States of Micronesia approximately $50 million for the change in diplomatic recognition, an arrangement for which he took credit.

“We can and will receive this, over a three-year period, if and when we establish diplomatic relations with Taiwan,” Panuelo insisted.

As compact state leaders have weighed their options, U.S. officials have been making their own maneuvers, largely by making similar offers of economic assistance. As officials in the Biden administration acknowledged at the hearing last month, the Biden administration is planning on providing the compact states with $7.1 billion in economic assistance over the next two decades.

According to administration officials, U.S. economic aid is critically important to countering China and securing a U.S. presence in the region.

“It’s so important to get our presence there beefed up,” Craig Hart, an administrator at the U.S. Agency for International Development, told Congress.

Many U.S. officials hope that an influx of economic assistance will be enough to keep the compact states under U.S. influence. Major new economic investments, they believe, will strengthen the U.S. presence in the region and avert a more direct confrontation with China.

In this way, the United States is battling for control of the compact states by using aid and diplomacy when possible but preparing for military confrontation with China if necessary.

“This battle will be far less expensive than other battles if we handle it at the aid and diplomacy level,” Representative Sherman said.

This article has been republished with permission from Foreign Policy in Focus.