Panama navigates uncertainty as US tries to claim the canal

US warships could soon enjoy free and priority use of the Panama Canal, but there’s still a long way to go before tensions in one of the world’s most important trade passages are resolved.

Panama’s strategic value — to the US and many other shipping nations — is thanks to its 51-mile (82-kilometer) canal, which allows ships to easily pass between the Pacific and Atlantic oceans without needing to unload cargo or sail around South America.

The canal has been thrust into the limelight since the return of Donald Trump as US president in January. Trump is opposed to China’s growing influence in the region, and has repeatedly spoken about “reclaiming” the canal — which the US ceded to Panama in 1999. He hasn’t ruled out a military invasion to achieve his goal.

Amid tensions over Trump’s rhetoric, US Defense Secretary Pete Hegseth met with Panamanian President Jose Raul Mulino this week to shore up relations. A joint statement released by the pair on Wednesday struck a friendly tone, but sticking points remain.

Panama’s ‘inalienable sovereignty’ lost in translation

Mulino has already worked to appease the Trump administration on the subject of China.

After a visit by US Secretary of State Marco Rubio in February Panama confirmed it would exit China’s Belt and Road initiative, which is building major infrastructure projects including ports and airports around the world.

Separately, Mulino’s administration has pressured Chinese conglomerates that own Panamanian ports to exit the country.

On Wednesday, the first point in the Hegseth-Mulino statement directly addressed another key Trump talking point: tolls. Trump has consistently labelled the canal usage fees paid by the US as a “bad deal” — even though, under the canal neutrality treaty, all nations are charged the same rates.

While Panama has said it’s impossible to give the US free passage under those terms, it appears US warships may get a cost-neutral compensation scheme instead, along with priority access. “First and free,” as Hegseth described it after talks with Mulino.

And while Panama’s military is the only force allowed to use the canal, the two countries have agreed to undertake joint military exercises. However, Panama has said it won’t accept the reestablishment of US military bases in the country.

But there remained one stark point of contention. The Spanish-language version of the joint statement, released by Panama, said “Hegseth recognized Panama’s leadership and inalienable sovereignty over the Panama Canal and its adjacent areas.”

That line didn’t appear in the English version released by the Pentagon.

Natasha Lindstaedt, a political scientist professor at the University of Essex in the UK, said the omission was almost certainly a ploy to keep Panama guessing about the intentions of the Trump administration.

“I think it was on purpose not to put it in the English version, to make Panama feel uncertain and not feel like the situation has been resolved,” she said.

Canal sovereignty long a sticking point

The US built the Panama Canal between 1904 and 1914, creating a massive waterway between the country’s Pacific and Caribbean shorelines. It enabled American ships — including naval vessels — to easily pass between the two oceans.

Negotiations to cede control back to Panama began under the Kennedy administration in the early 1960s, and were continued by Democrat and Republican presidents until Jimmy Carter formalized treaties with Panamanian nationalist leader Omar Torrijos in 1977.

Those treaty deals saw Panama take control of the canal on New Year’s Eve 1999, under the conditions that it be operated neutrally.

Contrary to claims by Trump, the canal wasn’t gifted to the Panamanians, nor is it controlled by China.

‘US is not very popular in Panama’

But China does wield influence in the canal — it’s the second-biggest user behind the US, and Chinese firms operate ports at each end.

That concerns the US, and especially the hawkish Trump administration. The president has been clear in his intent to neutralize China’s growing influence around the world, as evidenced by his new trans-Pacific trade war.

Though Hegseth said US security would be achieved by a partnership with Panama, Trump has repeatedly failed to rule out military intervention to reclaim the canal.

That would represent a dramatic about-face on US foreign policy. In 1975, then US Secretary of State Henry Kissinger told Republican President Ford that failure to negotiate a handover of the canal would lead to “real uproar; volunteers, demonstrations, violence, and we would be dragged into every international forum. This is no issue to face the world on. It looks like pure colonialism.”

In Panama, that sentiment remains today, with regular protests since Trump first spoke of retaking the waterway. This week, around 200 people protested Hegseth’s visit in Panama City and one demonstrator burned a US flag.

Lindstaedt, herself Panamanian, said Trump’s return had left Panama and the wider region concerned.

“This has basically dominated the headlines in Panama, with just complete bewilderment and fear as to why they are doing this and when will it end,” she said. “The US is not very popular in Panama at the moment, at all.”

However, Jorge Heine, a former Chilean ambassador to China and international relations expert at Boston University, believes it’s unlikely a Trump-led US would go ahead with a military intervention.

“President Trump combines a rhetoric that at times can sound extremely aggressive,” he told DW.

“But at the same time, he has conveyed that he really isn’t very interested in being a war monger, and in otherwise deploying US military force as aggressively as some of his predecessors.”

US trying to squeeze out China

China, the top trading partner for Central and South America, has rebuffed Hegseth’s claims of it being a “malign” influence in Panama. 

Beijing has also struck back with an antitrust review into a proposed acquisition of Hong Kong-based CK Hutchison Holdings’ assets in the canal by American investment firm BlackRock.

That will further complicate BlackRock’s efforts to acquire $22.8 billion (€20.6 billion) of Hutchison’s global port assets — including two sites in Panama. The deal was announced in March, welcomed by Trump and criticized by Beijing. BlackRock CEO Larry Fink said the deal could take nine months to be certified.

Hutchison is also caught up by a Panama government investigation into a 25-year agreement it signed in 2021 to allow the conglomerate to operate two ports in the canal. Lawsuits are being considered against government officials involved in authorizing the deal.

But attempts to squeeze Chinese influence in the region may not be in the best interests of either side.

“The United States’ effort to diminish the Chinese presence in Latin America, you could argue, is a legitimate approach,” said Heine. But, he added, if the US really wanted to “win over the hearts and minds” of governments and people in Latin America, it should not “block China from doing business” in the region.

“That goes down very badly, because it is seen as something that essentially blocks Latin American growth,” he said.

“The best way to proceed is for the United States to compete with China: to say ‘We can build better ports, we can do more trade, we can build better factories, we can do better business with you’.”