Panama Canal: What's at Stake for China amid US Threats?

Washington's new top diplomat, Marco Rubio, will travel to Panama this week in his first overseas trip since assuming office. The new administration's immigration crackdown is likely to be among the top issues during talks, but US President Donald Trump's claim that the Central American nation had ceded control of the Panama Canal to China will also loom large.

"We didn't give [the Panama Canal] to China, we gave it to Panama, and we're taking it back," said Trump in his second inaugural address.

His comments drew quick rebuttals from both Beijing and the Panamanian President José Raúl Mulino, who in a post on X said there was "absolutely no Chinese interference" in the canal.

But Trump's remarks have prompted fresh questions about China's involvement in one of the most vital waterways for international trade. Rubio, the new US secretary of state, addressed Trump's concerns at his confirmation hearing earlier this month.

"An argument could be made that the terms under which that canal was turned over have been violated," he told the Senate Foreign Relations Committee.

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For decades after its completion in 1914,the United States administered the Panama Canal, an 82 kilometer (51-mile) waterway connecting the Pacific and Atlantic oceans. Full control of the canal was returned to Panama in 1999, but Washington reserved the right to use military force to preserve its neutrality. Some 40% of all US container traffic passes through the canal each year with China as its second biggest user.

The waterway is managed by the Panama Canal Authority (ACP), a branch of the Panamanian government. Panamanian authorities have repeatedly stated that there is no Chinese management of the canal.

China has significantly expanded its presence around the canal in recent years, especially since Panama established diplomatic ties with Beijing in 2017. That was the same year Panama became the first Latin American nation to join China's Belt and Road Initiative.

Concerns of Chinese overreach in the waterway have focused on two ports, Balboa and Cristóbal, located on the Pacific and Atlantic sides of the canal respectively. Since 1997, they have been operated by a subsidiary of Hutchison Port Holdings, itself a subsidiary of Hong Kong-based CK Hutchison Holdings, owned by Hong Kong billionaire Li Ka-shing.

Analysts said even if Trump's threats are just bluster — and the Chinese threats overstated — there is a method to the new president's rhetoric.

"We're seeing Trump use Panama as an example," said Will Freeman, a fellow for Latin American studies at the Council on Foreign Relations. "[He's saying] don't think you can get away with closer ties with China on my watch."

A critical military artery
There are concerns in Washington that Chinese operations around the Panama Canal could morph into a capacity to control it, especially if a hot conflict were to break out between the two superpowers.

In testimony to the US Congress last year, the then-commander of the United States Southern Command responsible for Central and South America, General Laura Richardson said, "[China] messages its investments as peaceful. But many serve as points of future multi-domain access for [China] and strategic naval chokepoints," before citing the Panama Canal by name.

This stands in stark contrast to how Beijing characterizes its relationship with Panama. In a message congratulating Panamanian President Mulino on his election victory last year, Chinese President Xi Jinping said that establishing diplomatic ties had brought "tangible benefits to the people of both nations."

But Evan Ellis, a research professor of Latin American studies at the US Army War College, said that in a Chinese invasion scenario of Taiwan, existing Chinese access, influence and technical knowledge could be used to "shut down the canal in deniable ways." Ellis told DW that could come through "arranging" the sinking of a ship or through either physical or cyber-sabotaging of locks.

Ellis added that in the context of a war in the Indo-Pacific, such activity could be used by China to impede US deployments and other war-fighting efforts. In the case of Taiwan, delays to US support by even a few days could be the difference between China's invasion being successful or not. There are several ways China could do this, Ellis said, "but one of those big pins on the drawing board is shutting down the Panama Canal."

‘America First' could open doors for Beijing
Since taking office, Trump has directed many of his most combative directives at other nations in the Americas, including those seen as important allies of the United States. Trump has threatened to impose tariffs of 25% on all imports from Canada and Mexico from February 1.

This weekend, Colombia only managed to avoid a trade war with Washington after agreeing to accept US military aircraft carrying deported migrants. Honduran President Xiomara Castro has called for an urgent meeting of the Community of Latin American and Caribbean States (CELAC) this week to discuss ways to deal with the new US administration.

Some suggest that China could capitalize on US hostility toward countries like Panama, allowing Beijing to double down on the perception that China is the "adult in the room" when it comes to global politics.

"It presents opportunities for China to neutralize US soft power and friendship," said Ellis. "It reduces US power and increases Chinese opportunities for both political and commercial engagement [in Latin America]."

The Trump administration does seem to be prioritizing Latin America as Rubio is also scheduled to stop in Costa Rica, El Salvador, Guatemala and the Dominican Republic during his inaugural trip.

"It's about making sure that if we're going to be safe and prosperous and in good shape, we've got to have an interest in our neighbors," US State Department spokesperson Tammy Bruce told reporters this week, "and in today's world, it's certainly South and Central America."