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Since U.S. President Donald Trump’s first mention of “taking back” the Panama Canal, Panamanians have been bracing for potentially destabilizing interventions. In a treaty signed in 1977, the United States agreed to completely turn over control of the canal to Panama by December 1999. While the treaty still afforded the United States a permanent right to defend the canal from threats, it also stated that the canal’s operations should remain neutral to all countries in times of war or peace. Neutral operation of the canal has remained imperative to the movement of trade through the Americas and as an economic engine for Panama. Now, Trump refuses to rule out military force as a means of countering what he sees as a Chinese-controlled canal. He has made the canal both a feature of his agenda and a thread of U.S.-China competition.
The canal crisis that Panama is facing may be geographically small, but it could have large ramifications for the region and U.S.-China competition in Latin America.
A Separation of Canal and State
Panamanian President José Raúl Mulino has had to respond to U.S. concerns rooted in suspicions of Hong Kong–based Hutchison Port Holdings, of which Panama Ports Company is a subsidiary. The Trump administration views the fact that this subsidiary is currently operating two of the five ports surrounding the canal as a threat to U.S. security. The Panama Maritime Authority responded to concerns in January by beginning an audit of the Panama Ports Company. On the day of U.S. Secretary of State Marco Rubio’s visit to Panama in February, Mulino announced that Panama would not renew its agreement with China as a partner of the latter’s Belt and Road Initiative (BRI) for global infrastructure investment. These moves were certainly intended to placate U.S. officials worried that increased global participation in the BRI is allowing Chinese influence to go unchecked in critical areas such as the Panama Canal.
Unexpectedly, on February 5, the U.S. State Department posted a statement falsely claiming that U.S. government vessels would no longer be charged fees to transit the canal. The fees—reported by the Panama Canal Authority to total $25.4 million over the last twenty-six years—have become a point of focus for Trump, who claims U.S. vessels are being charged exorbitant fees. Rubio also called it “absurd” for the United States to pay for transit through the canal in light of the U.S. obligation to protect the canal if needed. Both Mulino and the Panama Canal Authority made official statements to dispel the claims that Panama had changed the transit fees at all. Mulino’s defense was twofold. First, he had to inform the world that the State Department’s claim was false, stating that “in [his] book, bilateral relations between two friendly countries are not managed that way.” Second, he had to reassure Panamanians that he had not attempted to use executive power to transgress Panama’s laws. The Panamanian constitution dictates that the Panama Canal Authority, as a governing body independent of the Panamanian president, is the foremost authority for setting canal tolls. To suggest that Mulino would circumvent the appropriate channels to change fees calls into question the integrity of the canal’s operation.
Panamanian and Chinese Reactions
Panamanians have reacted strongly to the events of the past month. For many, Trump’s challenge is a public test of Mulino’s capacity to govern in the interest of Panama. They view U.S. pressure to push the Panama Ports Company out of the canal as a violation of the neutrality clauses in the 1977 treaty. For some Panamanians, Trump’s “desire for expansionism from the Panama Canal to Mars” represents an explicit return of the imperialist framework that allowed the United States to create or govern the canal at all—they believe it echoes the first Trump administration’s callbacks to the 1823 Monroe Doctrine, which provided the ideological foundation for U.S. political, economic, and military intervention in the Western Hemisphere after European colonization. Lastly, some Panamanians wonder whether Rubio’s issue with the U.S. obligation to protect the canal will create an opportunity to revise the original terms of the treaty.
Chinese officials are unhappy about the moves Mulino has made to reassure his American counterpart. They displayed little reaction to Panama’s intention to audit the Panama Ports Company, but the country’s announced exit from the BRI is a different story. China’s Ministry of Foreign Affairs made its disappointment crystal clear, going so far as to say U.S. officials are acting with a Cold War mindset. In response, Mulino has denied any intention to part with Beijing diplomatically, a commitment to a status quo for Panamanian foreign policy since Panama recognized China diplomatically in 2017.
Regional Reactions
Countries throughout Latin America have multilayered relationships with China. Panama’s fellow Central American nations have been particularly welcoming to Chinese partnership. In the last ten years, four of the six Central American countries have opened diplomatic relations with Beijing. Costa Rica was an early adopter in 2007. Guatemala is precluded from being a BRI partner because it continues to recognize the Republic of China (Taiwan), a fact highlighted in discussions between Guatemalan President Bernardo Arévalo and Rubio. In contrast, Costa Rica, El Salvador, Honduras, Nicaragua, and Panama have all accepted heavy infrastructure investment from China before or after becoming BRI partners.
Zooming out, reaction in broader Latin America paints a polarized picture of nations in the crosshairs of U.S.-China competition. On one hand, many countries welcome the return of a heavy U.S. hand in Latin American affairs. Whether they are keen to see what Trump’s style of disruptive diplomacy can do for their country or simply see American leadership as a backbone for the hemisphere’s security, these nations do not seem to share Panamanians’ vigor in defending the canal. Argentine President Javier Milei, despite maintaining healthy relations with Beijing, declared his unequivocal support for the Panama Canal being “delivered to Trump.” As such, Milei was reported to be the only country official who rejected the Community of Latin American and Caribbean States’ resolution to provide a statement of support for Mulino.
On the other hand, some countries are wary of Trump disrupting Panama’s operation of the canal. Big maritime players such as Chile, Colombia, and Peru seem to desire greater clarity on the canal’s protocols for setting passage fees. Their investment as top-ten users of the canal shows—to the rest of the world—that keeping the canal neutral is not just a U.S.-China issue. Colombian President Gustavo Petro and Chilean President Gabriel Boric were both early supporters of preserving Panamanian sovereignty. Thus, their positions naturally align much more closely with Panamanians’ concerns. Peruvian officials, however, have been notably quiet given their newly inaugurated Chancay megaport, a sixty-forty joint venture between the Chinese state-owned shipping company COSCO and the Peruvian mining company Volcan.
Regardless of their public reactions, these countries are likely to continue discretely balancing the opportunities offered by Chinese investment against diplomatic cooperation with the United States. But whether China will accept Latin American partners making political concessions under U.S. pressure is unknown.
The Challenge Ahead
Panama will continue to wrestle with the uncertainty that American pressure has caused domestically and with China. This uncertainty has already manifested internally, evidenced by recent litigation against Mulino as well as demands to implement higher transparency around the funds earned by the canal. Externally, Mulino has yet to find a way to initiate productive diplomacy with Trump. Panama was waiting for a call between the presidents on February 7, but Trump cancelled. Until this issue is resolved, Panamanians will continue waiting for Trump’s call.
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