Tide gauge and satellite data reveal an interannual oscillation of the ocean’s thermoclines east of the Philippines and Taiwan, forced by a corresponding oscillation in the wind stress curl. This so-called Philippines–Taiwan Oscillation (PTO) is shown to control the interannual variability of the circulation of the subtropical and tropical western North Pacific. The PTO shares some characteristics of known Pacific indices, for example, Niño-3.4. However, unlike PTO, these other indices explain only portions of the western North Pacific circulation. The reason is because of the nonlinear nature of the forcing in which mesoscale (ocean) eddies play a crucial role. In years of positive PTO, the thermocline east of the Philippines rises while east of Taiwan it deepens. This results in a northward shift of the North Equatorial Current (NEC), increased vertical shear of the Subtropical Countercurrent (STCC)/NEC system, increased eddy activity dominated by warm eddies in the STCC, increased Kuroshio transport off the northeastern coast of Taiwan into the East China Sea, increased westward inflow through Luzon Strait into the South China Sea, and cyclonic circulation and low sea surface height anomalies in the South China Sea. The reverse applies in years of negative PTO.