AMERICANDIVIDENDFUND EST·MMXXVI American Dividend Fund Est. July 4, 2026 · A nonpartisan policy laboratory

Proposal № 108 of 250  ·  Released October 19, 2026

The Island Compact

Three Pacific nations, the Marshall Islands, Micronesia and Palau, give the United States exclusive military access to a stretch of ocean from Hawaii to the Philippines and the right to keep every other military out. In return they receive about $355 million a year, renegotiated every twenty years in a process that lapses, stalls, and leaves China an opening each time. It is the cheapest strategic asset the country holds and it is treated as a grant programme. Make the compacts permanent, fund the trusts to independence, and treat the islanders as the partners they are.

The Open HandShare on X

The problem

The Compacts of Free Association are the most lopsided bargain in American foreign policy, in America's favour, and the country keeps nearly forgetting to renew them. Under the compacts, the Republic of the Marshall Islands, the Federated States of Micronesia and the Republic of Palau, three sovereign nations of about 200,000 people across an ocean area the size of the continental United States, grant the United States exclusive military access to their territory and waters and the right of strategic denial: no other country's military may enter. The corridor runs from Hawaii to Japan, the Philippines and Taiwan. In return the United States provides economic assistance, defends the islands, and admits their citizens to live and work in the United States without visas.

The assistance, renewed in 2023 after the previous terms lapsed, is $7.1 billion over twenty years, about $355 million a year, or roughly the cost of one F-35 squadron's annual operation, for a strategic position that the Navy could not buy at any price. The renewal took years, ran past its deadline, and was finally signed into law in March 2024, more than a year after the first compact expired, during which the islands' governments watched Washington argue and Beijing offer. China had already delisted Palau as an approved destination for Chinese tourists over its ties with Taiwan, cutting arrivals from tens of thousands to fewer than sixty in a year; it has offered the Solomon Islands a security agreement and Kiribati a runway. Every twenty years the compacts come up, and every twenty years the islands learn how little attention the country pays to its cheapest asset.

The islanders themselves have carried the relationship. The Marshall Islands hosted 67 nuclear tests between 1946 and 1958, whose consequences its people still live with. Compact citizens serve in the American military at higher rates per capita than any state. Tens of thousands live in Arkansas, Hawaii and Oregon, and until 2020 were excluded from Medicaid by a drafting error nobody fixed for twenty-four years. The Government Accountability Office reported in 2026 that the education and health assistance the compacts promise is delayed in implementation and oversight. The relationship is strategic for the United States and existential for the islands, and only one side treats it that way.

The proposal

The Island Compact: the three compacts are made permanent, with no expiration and no renewal cliff. Economic assistance is indexed and fixed by statute. The compact trust funds are endowed to the level at which their return replaces the annual assistance, so that the islands hold their own principal. Compact citizens in the United States receive every federal benefit a permanent resident receives. A climate clause guarantees the Marshall Islands' people a home. And the islands hold a seat at every table where the corridor is discussed.

How it would work

  1. Permanent. The compacts continue without expiration, on the model of the mutual defence treaties the United States holds with Japan, Korea and Australia, which are not renegotiated every twenty years. Either party may withdraw on notice, as with any treaty; neither has to fight for renewal. The strategic denial provision continues as long as the compact does.
  1. Assistance, fixed and indexed. The $355 million a year is written into permanent law and indexed to inflation, so that the islands' budgets do not depend on an appropriations cycle in a Congress that has, twice, let them lapse.
  1. The trusts, endowed. Each compact created a trust fund meant to replace the assistance when it ended; the funds were underfunded from the start and, by the Government Accountability Office's repeated findings, cannot do what they were built to do. Under the Compact, the United States endows each trust, over ten years, to the level at which a 3 percent payout under the rule of № 067 equals the annual assistance: roughly $12 billion in total, invested under the Index Rule of № 065. After that the islands own their principal, and the assistance is a dividend rather than a grant.
  1. Compact citizens, fully. A citizen of the three nations living in the United States under the compact receives every federal benefit available to a permanent resident, without the exclusions that have been fixed one at a time since 1996. They are the only foreign citizens who may live and work in the United States indefinitely by treaty, and they are treated as the partners the treaty makes them.
  1. The climate clause. The Marshall Islands' atolls average two metres above sea level. The Compact guarantees that, should any part of the islands become uninhabitable, its people have the right to relocate to the United States with permanent residence, as a treaty obligation rather than a humanitarian gesture. The islands' government decides when; the United States has already promised where.
  1. A seat. The three governments are consulted, by right, on any basing, exercise or agreement in the corridor, and hold observer status in the Pacific security arrangements the United States leads. A partner is asked.
  1. The fleets. The Hospital Fleet of № 059 keeps its Pacific station in the corridor; the Scholar Fleet of № 057 reserves places for the islands' students; the Forecast Gift of № 114 funds their weather stations first. The islands are where the Open Hand and the Perimeter meet.

The numbers

The assistance. $355 million a year. For comparison, the Defense Department's annual budget is about $850 billion; the assistance is about four hundredths of one percent of it, for exclusive control of a corridor the size of the continental United States.

The endowment. About $12 billion over ten years to fund the three trusts to independence, after which the annual assistance ends and the islands draw their own dividend. The one-time cost is roughly the price of one aircraft carrier, and it ends the twenty-year cliff forever.

The people. About 200,000 in the islands; about 100,000 compact citizens in the United States; military enlistment per capita among the highest of any population under the flag.

The alternative. A Chinese security agreement with any one of the three would place a foreign military in the corridor for the first time since 1945, and the cost of answering that would not be measured in millions.

The honest objections

"Permanent aid creates permanent dependence." The endowment in item 3 is the answer: the assistance becomes the islands' own principal, drawn under their own rule, and the annual transfer ends. The islands become the owners of an endowment rather than the recipients of a grant, which is what this catalog proposes for Americans in № 001 and for Africans in № 006.

"Twelve billion dollars for 200,000 people is an extraordinary sum per head." It is, and it buys an extraordinary thing per head: exclusive military access to a fifth of the Pacific, for as long as the compact stands, from three nations that have never asked for anything the United States could not easily give. The sum is judged against the corridor, not the census.

"The islands are sovereign and a permanent compact binds them forever." Either party may withdraw on notice, as from any treaty. What the Compact ends is the requirement that the islands re-earn the relationship every twenty years while Beijing waits in the lobby. Permanence is the islands' protection as much as America's.

"The Marshall Islands may be uninhabitable within the century, and no compact can change that." True, and item 5 is written for it: a treaty right to relocate, held by the islands' government, decided by them. A country that tested 67 nuclear weapons on their atolls and then guaranteed their people nowhere to go would have failed a test that has nothing to do with strategy.

"The money should go to Africa, where the need is larger." The need is larger and № 006, № 111 and the rest of this block address it at a scale that makes the Island Compact a footnote. The islands are in this catalog because the country is about to forget them again, and because what they give is not a footnote.

Sources

  • Compact of Free Association Amendments Act of 2024, Pub. L. 118-42, Division G; Congressional Research Service, The Compacts of Free Association (IF12194)
  • U.S. Government Accountability Office, Compacts of Free Association: Implications of Planned Ending of Some U.S. Economic Assistance (GAO-22-104436) and Education and Health Remain Priorities, but Implementation and Oversight Are Delayed (GAO-26-107778)
  • U.S. Department of the Interior, Office of Insular Affairs, Compacts of Free Association
  • Joint Economic Committee, How the Renewed Compacts of Free Association Support U.S. Economic, National Security, and Climate Goals (2024)
  • Republic of the Marshall Islands, National Nuclear Commission, on the 1946–1958 test programme and its consequences
  • Proposals № 001 (The American Dividend); № 006 (The Marshall Compact); № 057 (The Scholar Fleet); № 059 (The Hospital Fleet); № 062 (The Base Dividend); № 065 (The Index Rule); № 067 (The Spending Rule); № 114 (The Forecast Gift, forthcoming)