China’s Influence Over Panama Canal: What’s At Stake For U.S. Strategy

As tensions rise over control of the Panama Canal, China and the U.S. face a diplomatic standoff with significant implications for global trade routes.

At a Glance

Panamanian President José Raúl Mulino denies any Chinese military presence at the canal.
China is the second-largest user of the Panama Canal, with major investments in Panama.
President-elect Trump threatens to take back U.S. control of the canal.
The canal experiences increased shipping costs due to drought and rising tensions.

U.S. Concerns and Responses

Donald Trump, the U.S. president-elect, has made contentious claims regarding Chinese military operation at the Panama Canal, despite firm denials from Panamanian authorities. These allegations have sparked a series of potential policy responses from the U.S., including threats to reclaim control over this strategic waterway. Trump’s accusations of Panama exploiting shipping costs further exacerbate this geopolitical friction.

Panamanian President José Raúl Mulino stood his ground, rejecting claims of Chinese military involvement and averting any negotiation on reducing U.S. tolls or ceding canal control. Mulino firmly stated, “There is absolutely no Chinese interference or participation in anything that has to do with the Panama Canal.”

Despite these assertions, the larger context of China’s growing influence in the region remains a cause for concern among U.S. officials like Brian Hughes, who noted, “Chinese control of the Panama Canal absolutely poses a national security threat to the U.S.” The backdrop of Panama’s 2017 diplomatic shift from Taiwan to China, combined with significant Chinese investments across Panama, including major port operations, contributes to these tensions.

"Panama Canal controversy may deepen strain in US-China relations" (@TheHillOpinion) https://t.co/bFRGYj7ZzM

— The Hill (@thehill) January 1, 2025

Implications for Global Trade

The Panama Canal’s strategic importance cannot be overstated, particularly as an essential artery for global maritime trade. Transporting up to 14,000 ships annually is vital to many economic sectors, including in the U.S., that rely on cost-efficient shipping routes. Trump’s concerns revolve around increasing canal tolls aggravated by a severe drought, which add layers of complexity to already challenging economic relations. The management of two major ports by Hong Kong’s CK Hutchison Holdings exemplifies China’s broader strategic presence in maritime logistics.

“The canal is Panamanian and belongs to Panamanians. There’s no possibility of opening any kind of conversation around this reality,” said President José Raúl Mulino.

This situation amplifies the fear that potential Chinese control of such global trade chokepoints could afford China leverage over crucial U.S. economic interests. Given China is the second-largest user of the canal, scenarios of tariff adjustments or shipping route alterations lead to valid U.S. concerns over economic and strategic disruptions.

🌎🇺🇸 Trump signals combative foreign policy with threats to Panama and Greenland

Full Story → https://t.co/IdIud1EJnj

Donald Trump has revived controversial ideas, including reasserting control of the Panama Canal and purchasing Greenland, signaling a bold "America First"… pic.twitter.com/95qTuYomQo

— PiQ (@PiQSuite) December 23, 2024

Strategic Ramifications

Beyond economics, the potential shift in control speaks to broader geopolitical stakes. The canal had been under U.S. jurisdiction until 1999, a legacy many still view as crucial to U.S. influence in the Western Hemisphere. Trump’s announcements, including the nomination of Kevin Marino Cabrera as ambassador to Panama, mark an effort to retaliate to perceived excesses and protect national interests.

“Merry Christmas to all, including to the wonderful soldiers of China, who are lovingly, but illegally, operating the Panama Canal.” Donald Trump wrote on his Truth Social platform.

The Panama Canal stands as a critical point of contention in broader dynamics between global powers. The importance of safeguarding it from economic manipulation or geopolitical encroachment holds significant sway over U.S. policy considerations in this evolving global landscape.