25 May Panama: A Strategic Battleground in the U.S.-China Rivalry
By,
Jose Adan Gutierrez, Senior Fellow, MSI²
Executive Summary: This article examines Panama’s evolving role as a strategic battleground in the intensifying rivalry between the United States and China. Once firmly anchored within the U.S. sphere of influence, Panama has increasingly become a focal point of Chinese geoeconomic engagement, particularly following its 2017 diplomatic shift toward Beijing and its integration into China’s Belt and Road Initiative.
As U.S. geopolitical concerns sharpen—especially under the renewed strategic posture of the second Trump administration—Panama finds itself navigating a precarious path between economic opportunity and political allegiance. While most Latin American governments remain reluctant to enter military partnerships with China for fear of provoking Washington, China appears to be biding its time—quietly cultivating long-term influence through infrastructure, trade, and digital platforms, potentially setting the stage for deeper strategic and military cooperation in the future; China wants to implement its own international system. Through historical analysis and current developments, this piece explores how these dynamics are shaping Panama’s sovereignty and the broader balance of power in the Western Hemisphere.
Introduction
Panama has long held strategic value far beyond its size, serving as a pivotal link between oceans and as a cornerstone of U.S. global trade and defense architecture. From its U.S.-backed birth in 1903 to its stewardship of the Panama Canal today, Panama’s sovereignty and strategic autonomy have often been shaped by great power dynamics. Yet never before has it had to balance its interests so carefully between two giants—until now.
The growing U.S.-China rivalry has transformed Panama from a relatively quiet ally of the United States into a contested space of influence. Once secure under the American security umbrella, Panama now finds itself navigating competing pressures, investments, and visions of its future. While the United States continues to approach the Latin American region through a geopolitical lens—emphasizing military, diplomatic, and strategic control—China, on the other hand, has been using a geoeconomics approach to fill any void the U.S. creates, embedding itself through infrastructure, trade, and long-term commercial engagement. Most Latin American governments remain wary of military cooperation with China for fear of upsetting Washington, and Beijing has largely respected these limits, for now.
But there are signs that China is patiently laying the groundwork for deeper strategic influence, including the potential for future military engagement when conditions permit. Panama is no longer merely a partner—it has become a battleground.
I. Foundations of Strategic Partnership (1903–1999)
The U.S. played a decisive role in Panama’s 1903 independence from Colombia, an act directly tied to American ambitions to construct and control an interoceanic canal. The Hay-Bunau-Varilla Treaty gave the U.S. sovereign rights over the Panama Canal Zone, completed in 1914. This transformed Panama into a vital cog in the global shipping network and U.S. military strategy.
While this arrangement brought economic activity and development, it also sowed deep resentment over American dominance. The turning point came in the 1964 flag riots, when Panamanians clashed with U.S. authorities over national symbolism and sovereignty. The violence led to the deaths of 21 Panamanians and 4 Americans. It resulted in Panama breaking diplomatic relations with the United States—an unprecedented move for a Latin American country at the time. These events eventually led to years of negotiation, culminating in the Torrijos–Carter Treaties of 1977, which set a 22-year timeline for U.S. military withdrawal and the handover of the canal and all military bases to Panama in 1999.
The post-handover period saw Panama effectively manage the canal and maintain strong relations with Washington. Yet it also opened space for new actors—and ambitions—to enter the scene. As U.S. geopolitical engagement receded, China began laying the groundwork for economic influence, offering Panama an alternative partner rooted in geoeconomics incentives rather than political alignment.
II. Enter the Dragon: Belt, Road, and Influence in Panama (2000–2020)
China’s global strategy to expand its economic and strategic influence found fertile ground in Panama. Following Panama’s diplomatic switch in 2017 from recognizing Taiwan to the People’s Republic of China, Beijing launched a wave of initiatives aimed at embedding itself in the country’s infrastructure and economy.
Billions of dollars in promised investments followed, including proposals for ports near the canal’s entrances, a $4.1 billion high-speed rail line, new embassy facilities, and technology infrastructure. Panama became an official member of China’s Belt and Road Initiative (BRI), signaling what some observers saw as a pivot away from Western alignment.
While the United States maintained a largely geopolitical framework, focused on security concerns and political leverage, China’s approach was fundamentally geoeconomic. By providing capital, construction, and market access, Beijing stepped into the vacuum created by the waning American economic presence. Chinese companies began gaining port and logistics contracts at both ends of the canal, raising fears in Washington about dual-use infrastructure and long-term strategic encroachment.
Importantly, while China’s presence remained civilian and commercial, its footprint increasingly intersected with areas traditionally guarded as national security concerns by the U.S. Despite this, most Latin American governments—including Panama—have so far avoided military cooperation with China. The hesitancy is real, largely rooted in fear of U.S. retaliation. But China appears content to wait, quietly establishing influence and capabilities with long-term strategic options in mind.
III. Panama Becomes a Frontline: The Second Trump Administration and Strategic Confrontation (2025– )
With the inauguration of Donald Trump’s second administration in January 2025, the U.S. approach toward Panama and Latin America more broadly shifted from cautious concern to overt confrontation. In speeches, interviews, and direct diplomatic messages, President Trump repeatedly emphasized the importance of the Panama Canal to U.S. national security. At several rallies and press events, he went as far as saying the U.S. “may need to take the Canal back if Panama keeps letting China move in.”
This marked a dramatic escalation from prior administrations’ behind-the-scenes approach. Senior officials in the Trump White House and State Department warned publicly that Chinese involvement in Panama’s critical infrastructure represented a “red line” for U.S. interests. These warnings reflected a traditional geopolitical stance focused on military logistics, statecraft, and territorial influence.
Prior to Trump’s warnings, China’s geoeconomics strategy continued largely unabated, with investments and partnerships spreading throughout Panama’s transportation, telecom, and financial sectors. Soon after President Trump’s inauguration, joint statements with regional partners by the new American administration highlighted a renewed “Monroe Doctrine” posture, asserting that foreign powers—especially China—should not control or unduly influence strategic assets in the Western Hemisphere.
American pressure was no longer subtle. Trade negotiations with Panama were recalibrated. Security aid was tied to the limitation of Chinese contracts. High-level U.S. officials started visiting Panama frequently, offering alternative infrastructure financing through initiatives such as the Americas Partnership for Economic Prosperity and the Development Finance Corporation (DFC). The Trump administration also renewed discussion about the strategic implications of the Torrijos–Carter Treaties, with some surrogates openly questioning their permanence.
This open pressure put Panama in an unenviable position: managing a longstanding alliance with the United States while trying to avoid antagonizing its second-largest trading partner, who was using geoeconomics tools rather than direct confrontation—for now.
IV. Panamanian Reassessment and Strategic Tightrope
Confronted with this intensifying rivalry, Panamanian leadership began walking back earlier enthusiasm for China-led projects. The high-speed rail plan was indefinitely suspended. Chinese bids on port upgrades faced greater scrutiny. Discussions about cybersecurity, telecom contracts, and financial systems began to reflect Washington’s security framing.
Yet Panama also resisted becoming a pawn. Its leaders reasserted national sovereignty, emphasizing neutrality and a desire to remain open to global trade without becoming a proxy in great power politics. President Jose Raul Mulino reaffirmed Panama’s commitment to the canal’s neutrality, citing the principles enshrined in the 1977 treaties.
At the same time, Panama signaled a pragmatic understanding of U.S. concerns. Officials expressed willingness to collaborate more deeply on counterintelligence, anti-money laundering, and critical infrastructure protection—areas where U.S.-Panama cooperation has since deepened.
Still, China’s geoeconomics outreach continues to appeal to sectors of Panama’s economy, offering tangible benefits without the overt political conditionalities often attached to U.S. engagement. And while military ties between Latin American countries and China remain limited, Beijing appears to be methodically cultivating influence that could eventually support strategic—and even military—cooperation, should political circumstances shift.
V. Strategic Stakes: Canal Neutrality, Infrastructure, and Digital Sovereignty
At the center of the storm remains the Panama Canal—neutral by treaty, global in significance, but deeply contested in symbolic and strategic terms. It is a chokepoint for over 5% of global maritime trade and a vital conduit for U.S. military and commercial mobility. Any suggestion of Chinese control, influence, or manipulation is seen by Washington as intolerable.
Beyond the canal itself, the competition extends to the surrounding infrastructure. Chinese companies have vied for contracts in logistics hubs, special economic zones, and digital infrastructure, while U.S. agencies have flagged these as strategic vulnerabilities. While the U.S. prioritizes geopolitical control and regional dominance, China continues to build influence through a quieter, geoeconomic model—investing in roads, networks, and ports that yield long-term leverage.
As the contest expands into cyber and financial domains, Panama has become a test case for how small nations can protect digital sovereignty while navigating superpower demands rooted in fundamentally different approaches to influence. In this broader struggle, China’s patient posture may be laying the groundwork not only for economic advantage—but for a future strategic foothold.
VI. Filling the Void: The Eagle Must Reawaken
As Panama and other Latin American nations recalibrate in response to geopolitical pressure, one truth has become increasingly clear: wherever the United States withdraws—economically, diplomatically, digitally, or informationally—China moves in to fill the vacuum through geoeconomics means. Its strategy is deliberate, patient, and pragmatic.
The erosion of U.S. influence in the region is not inevitable, but it is the direct result of policy neglect and underinvestment. Washington must recognize that power projection today is not only about military presence—it is also about financing, connectivity, supply chains, and information ecosystems. The instruments of American national power must be fully reactivated and aligned: diplomacy must be bold, economic engagement must be robust, development initiatives must be sustained, and informational campaigns must be credible and consistent.
Equally important, U.S. private enterprise must rise to the challenge. American companies—especially in infrastructure, telecommunications, logistics, and digital services—must proactively invest and compete in Panama and the broader Latin American market. Strategic influence cannot rest solely on diplomacy; it must be reinforced by visible, value-driven American business engagement.
To maintain leadership in the hemisphere, the United States must stop ceding ground and begin winning hearts, minds, and markets again. The window is still open—but it is narrowing fast.
Conclusion: Giants Above, Sovereignty Below
Panama is no longer just a quiet outpost of American hemispheric strategy—it is the theater of a very modern conflict. The canal, once a symbol of U.S. dominance, now sits at the crossroads of 21st-century great power competition.
The second Trump administration’s forceful posture made this unmistakable. What had been a growing contest under the radar exploded into public policy, political rhetoric, and strategic recalibration. For Panama, this was a wake-up call: there is no sitting on the sidelines when giants clash. The country must remain agile, assertive, and principled, defending its sovereignty while maintaining the trust of its most important ally.
In the years ahead, the decisions made by both Panama and the United States regarding China’s presence and influence in the small Central American country will echo far beyond Panama’s borders. They will help shape the broader trajectory of the U.S.-China rivalry across the Western Hemisphere—between a geopolitical superpower and a patient, calculating, geoeconomic contender that may, in time, no longer shy away from military ambitions. China doesn’t want to be part of the United States’ international system, and China intends to implement its own international system. For now, they continue hiding their strength and biding their time in the Western Hemisphere.
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The opinions expressed in this article are those of the author and do not necessarily reflect the views of the Miami Strategic Intelligence Institute (MSI²).