We have chips to play. Let's sit at the table and play.
Trump's rhetoric about the canal has elevated Panama's strategic value, attracting major foreign investment like Maersk's railroad purchase and prompting high-level diplomatic activity. China's growing influence in Panama—including port terminal control and Belt and Road participation—has prompted the US to pressure the government to limit Chinese presence and assets.
- Panama's canal transferred $2.5 billion to the treasury in 2024, equal to 8% of the federal budget
- Maersk purchased the canal railroad in April 2025 during peak Trump threats
- Urban poverty in Panama is below 5%, but reaches 76% in indigenous areas
- President Mulino won May 2024 elections with only 34% of the vote
- China controls port terminals at Balboa and Cristóbal through CK Hutchison concessions
Trump's threats to reclaim the Panama Canal have unexpectedly positioned Panama as a geopolitical focal point between US-China rivalry, creating opportunities for strategic leverage and economic modernization.
Panama has spent the last seven months learning an unexpected lesson: being caught between two superpowers can be a gift, if you know how to use it. When Donald Trump began threatening last year to reclaim the Panama Canal—mentioning it six times during his March address to Congress—the Central American nation of 4.5 million people felt the ground shift beneath it. The canal, that engineering marvel connecting the Atlantic and Pacific, has been Panama's lifeline since the country took control of it in 1999. Trump's rhetoric shook a nation that had long considered itself firmly in the American orbit, a vital hub of global commerce and a strategic ally.
But something unexpected has emerged from the turbulence. The very attention that seemed threatening—the focus of two rival superpowers, the diplomatic pressure, the geopolitical stakes—has created an opening. Ricaurte Vásquez Morales, the canal's administrator, put it plainly: the battlefield of this geopolitical struggle is Panama, and for the first time, Panama has chips to play. He envisions an ambitious transformation: a $1.5 billion reservoir on the Río Indio to address water scarcity worsened by consumption and climate change; a pipeline along the canal's western edge to transport liquefied natural gas from the United States to Asia; expanded port operations and transshipment centers on both sides of the waterway. These projects would cement Panama's position as a world-class logistics hub, a vision that aligns with the government's broader infrastructure agenda.
The geopolitical tensions have already begun reshaping Panama's economy. In April, at the height of Trump's threats, the Danish shipping giant A.P. Moller-Maersk purchased the railroad connecting the ports on both sides of the canal—a vote of confidence in Panama's strategic importance. The canal itself is operating at full capacity as exporters rush to move goods before new tariffs take effect. Last year alone, the canal transferred $2.5 billion to Panama's treasury, equivalent to eight percent of the federal budget for 2025. The diplomatic activity in Panama City has become intense, with high-level political visits and quiet but constant lobbying that would have delighted a Cold War spy novelist.
Yet Trump's concerns about Chinese influence in Panama are not entirely baseless, even if his tone has been abrasive. China's presence in the country has grown significantly, particularly since Panama switched diplomatic recognition from Taiwan to Beijing in 2017, becoming the first Latin American nation to join the Belt and Road Initiative. Chinese companies won major contracts, including construction of a fourth bridge over the canal for $1.4 billion. The real flashpoint is control of the Balboa and Cristóbal port terminals on either side of the canal. These facilities are part of a deal in which Hong Kong billionaire Li Ka-shing, through his company CK Hutchison, is selling 43 ports to a consortium backed by BlackRock. The Chinese government has opposed this sale fiercely and threatened to block it—a move that essentially validates Trump's complaints about Chinese overreach.
President José Raúl Mulino, who won May 2024 elections with just 34 percent of the vote, has moved to appease Washington. He withdrew Panama from the Belt and Road Initiative, signed a security agreement with U.S. Defense Secretary Pete Hegseth, and allowed the American military to conduct joint exercises last month to "protect" the canal. Invalidating the port contract extensions, as the comptroller general has suggested, appears the most viable path to keeping the White House satisfied, though it risks Panama's reputation as an investment destination and could trigger international arbitration.
But Mulino faces a deeper challenge than managing great-power competition. Panama's economic model, which generated decades of rapid growth, has failed to distribute its gains equitably. The country reduced poverty dramatically over three decades, yet inequality remains stark: urban poverty stood below five percent in 2023, but in indigenous areas it reached 76 percent. Panameños have protested inflation and the cost of living, paralyzed the country over a $10 billion copper mine, and staged violent strikes. The pandemic hit hard, shrinking the economy by nearly 20 percent and doubling public debt. Mulino's combative style and heavy-handed approach have fueled social tensions and accusations of authoritarianism.
Yet there are signs of recovery. The economy is projected to grow four percent this year and next, nearly double the regional average. Finance Minister Felipe Chapman, a respected technocrat, is implementing fiscal adjustments to protect the credit rating and reduce the deficit from 7.4 percent of GDP in 2024 to 3.4 percent by 2026. A new generation of political leaders focused on transparency and anti-corruption now holds the largest bloc in the National Assembly. The solutions are within reach: improve tax collection, cut subsidies and special regimes, redirect social spending, boost tourism, and modernize banking. Panama needs more entrepreneurs and fewer offshore tax havens.
The canal remains the backbone of Panama's future, both its greatest achievement and its greatest challenge. Trump's threats, delivered without finesse, may have inadvertently awakened Panama to a historic opportunity. The country can position itself as the hemisphere's version of Singapore—maintaining strong ties with both superpowers while defending its strategic autonomy, the foundation of the canal's neutrality. Whether Mulino, caught between Washington's pressure and an impatient public, can navigate that balance remains the question that will define Panama's next chapter.
Citas Notables
The battlefield of this geopolitical discussion is in Panama. For the first time, we have chips to participate in the game. Let's sit at the table and play.— Ricaurte Vásquez Morales, Panama Canal administrator
At the end of the day, all Panamanians have a dollar in their wallet.— Frank de Lima, former economy minister, on Panama's alignment with the U.S. dollar
La Conversación del Hearth Otra perspectiva de la historia
Why should anyone outside Panama care about this dispute over the canal?
Because the canal moves roughly five percent of global maritime trade. When two superpowers start fighting over it, the entire world's supply chains feel the tremor. What happens in Panama affects shipping costs, delivery times, and prices on shelves everywhere.
But Trump's claim that China controls the canal—that seems overblown, doesn't it?
It is. China doesn't control the canal itself. But Chinese companies do operate port terminals on both sides of it, and that's what actually matters. Control the ports, and you influence the flow of goods. That's the real leverage.
So Panama is playing both sides?
Not exactly. Mulino is trying to stay neutral, which is the smartest move. But neutrality under pressure is fragile. He's already withdrawn from Belt and Road and allowed U.S. military exercises. He's tilting toward Washington, but carefully.
What's the bigger problem for Panama—the geopolitical pressure or the social unrest?
The social unrest. The geopolitical attention is actually an opportunity if managed right. But Panamanian society is exhausted. The economic model worked for decades but left most people behind. You can't sustain that indefinitely.
Is the copper mine the test of whether Mulino can hold things together?
It's one test. Reopening it would create 30,000 jobs and bring in tax revenue—economically attractive. But politically, it's dynamite. People remember the last fight over it. If Mulino pushes too hard, the streets could explode again.
What would success look like for Panama in this moment?
Attracting investment like Maersk did, modernizing infrastructure, and actually distributing the wealth more fairly. The canal gives them leverage. They need to use it to build a different kind of economy, not just a bigger version of the old one.