The Panama Canal is historically significant, economically vital, and geostrategically crucial to the United States. Connecting the Atlantic and Pacific Oceans, the canal accounts for 5 percent of global maritime trade and services 144 maritime routes used by 160 countries. Forty percent of US container traffic relies on it. In fact, roughly 72 percent of the vessels passing through the fifth-one-mile waterway either depart from or head to US ports. The Panama Canal Authority oversees it all.
President Trump admires the Panama Canal as an engineering feat as much as he dislikes that the United States relinquished control of it in 1999. Trump has been critical of its management for over a decade, garnering a rebuke from Panama City in 2011 for his position on transit fees. In August 2023 and thereafter, Trump revived his criticism of Panama over not only the fees for US vessels but also the dangers of foreign influence and dual-use infrastructure. China, Trump cautioned, had leveraged its newfound relationship with Panama to affect canal operations, which jeopardizes the canal’s neutrality and thus violates the 1977 Torrijos-Carter Treaties.
Trump would not abide this erosion of the canal’s sovereignty. At his 2025 Inaugural Address, Trump used the grand occasion to issue a stern warning. “China is operating the Panama Canal,” Trump proclaimed. “And we didn’t give it to China,” the new president declared, “We gave it to Panama, and we’re taking it back.”
Trump’s approach may offend the sensibilities of quiet-diplomacy proponents, but his stern message registered with audiences in Beijing and within countries in Latin America and the Caribbean that court China at the expense of American interests. Gone are the days of China advancing its influence in the Western Hemisphere without a challenge from the United States. Trump’s ultimatum to Panamanian President José Raúl Mulino over the sovereignty of the canal served as an opening salvo in his bid for a new configuration in hemispheric order.
Chinese influence and power
Over the past decade, China has strengthened its economic, diplomatic, and military ties with Latin America and the Caribbean. Former Panamanian President Juan Carlos Varela was on the forefront of economic cooperation that benefited China strategically. In 2017, Varela dropped diplomatic recognition of Taiwan, opened an embassy in Beijing, and pursued Sino-Panamanian trade and investment initiatives, including making Panama the first Latin American country to sign on to the Belt and Road Initiative. China seized the opportunity to integrate dozens of its businesses and predatory practices into various sectors of Panama—academia, culture, energy, finance, infrastructure, mining, and telecommunications—while extracting voluminous amounts of copper, reaping profits, and amassing political capital.
Now, China dominates the Colón Free Zone, where more than a dozen Chinese companies keep their regional headquarters, including Huawei. China Communications Construction Company, an outfit known for corruption and its connection to the People’s Liberation Army, will build a fourth bridge over the canal in an agreement shrouded in allegations of impropriety. “Corruption,” the US State Department deemed in 2024, “is among Panama’s most significant challenges” within both the government and private sector, a problem conducive to and exacerbated by engagement with the Chinese Communist Party (CCP).
Most worrisome to American policy makers, however, Hutchison Ports, a subsidiary of the Hong Kong–based CK Hutchison Holdings, have since 1997 operated the ports of Balboa—located at the canal’s Pacific entrance—and Cristóbal—situated at the Atlantic entryway, which services roughly 40 percent of the cargo containers traversing the canal. In 2021, Hutchison obtained a twenty-five-year renewal for its enterprise.
In short, China parlayed its economic relationship with Panama into “a strategic hub” for the Western Hemisphere. Given its economic and physical footprint, China has the capabilities and infrastructure to deploy advanced surveillance technology to conduct industrial espionage as well as gather intelligence on US military operations, which the CCP already undertakes at spy bases in Cuba. Panama’s Noel Rodriguez naval base, for instance, is located about three miles from the Balboa port. Moreover, Chinese intelligence agencies have likely acquired a sophisticated understanding of the canal’s lock system and other operational components. In the event of a major conflagration between the United States and China in the Indo-Pacific, China could make use of its operational knowledge as well as its dual-use infrastructure to sabotage the canal.
Such foreign influence, integration, and control has alarmed US analysts and officials, not the least of which have been US military commanders responsible for guarding the Western Hemisphere.
During the Biden administration, General Laura Richardson, then-commander of US Southern Command, consistently warned about the likelihood of China upgrading state-owned enterprises around the canal into military installations. In March 2024, Richardson advised the House Armed Services Committee that China seeks additional dual-use facilities adjacent to the canal at scale and pace. “In Panama,” she said, “PRC-controlled state-owned enterprises (SOEs) continue to bid on projects related to the Panama Canal—a global strategic chokepoint.” Her recent successor, Admiral Alvin Holsey, similarly acknowledges the danger, vowing to safeguard the canal.
Even before becoming the nation’s chief diplomat, Secretary of State Marco Rubio found the situation untenable, testifying at his confirmation hearing in January that China’s ability to shut down the canal “is a direct threat to the national interest in security of the United States.” After taking his oath, Rubio explained in an interview that, because Hutchinson is not functionally autonomous from the Chinese government, the CCP could use the Balboa and Cristóbal ports to close the canal amid a conflict. “I have zero doubt that they have contingency planning to do so,” Rubio said. “And,” he continued, “it’s my view that’s a violation of the treaty agreement.”
Trump resolved to address this clear and present threat to the canal. His strategy accords with the legal framework that provides for the canal’s neutrality and defense. Article IV of the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal establishes that the canal “shall remain permanently neutral.” To maintain that neutrality, Trump spoke loudly and brandishes a big stick in pursuit of a diplomatic resolution.
Rubio abroad
After giving an ultimatum to Panama, Trump dispatched Rubio to visit the country as the first stop on an official tour of Central America and the Caribbean (El Salvador, Guatemala, Costa Rica, Panama, and the Dominican Republic), where Rubio would discuss economic and security cooperation with regional partners. Upon his departure, Rubio contended his destination was the kickoff of “An Americas First foreign policy,” a strategic orientation that I outlined in an October 2024 Hoover History Lab essay.
Rubio’s first trip abroad to Central America and the Caribbean defied previous conventions. Rubio’s predecessor, Antony Blinken, began his tenure with a February 2021 “virtual visit” to Canada and Mexico before an in-person visit to Japan in March. Blinken’s predecessors had similar itineraries, occasionally with an emphasis on the North American union. One must return to the William Howard Taft administration to find a secretary of state journeying to Central America first. In late February 1912, Philander Knox began his overseas diplomatic ventures in Panama, following his Panamanian sojourn with a ten-country tour through March of Central America and the Caribbean, including a stop in Venezuela.
Where the secretary of state travels first can be more than symbolism. Rubio’s visit not only signified the importance of the Americas to the United States but also delivered tangible results for the Trump administration’s bid to enhance security, stimulate development, and foster friendlier relations among America’s partners in Central America and the Caribbean.
Rubio’s first stop in Panama fundamentally changed the dynamics in Sino-Panamanian relations and opened a pathway to a resolution of the canal issue.
Yet, from the outset, President Mulino appeared unlikely to yield. He had denied that China possessed any control of the canal. Negotiating the return of the canal to the United States was also completely off his agenda. Despite this stance, however, Mulino is a conservative leader favorable to the United States who has sought to curb migration through the Darién Gap and crack down on drug smuggling. In meeting with Rubio, Mulino received the political cover and geopolitical leverage he needed to sever Panama’s relationship with China. Rubio, for his part, conveyed Trump’s view that the sovereignty of the canal was in question due to China’s presence in the country, delivering American expectations for the canal. Both countries achieved results on the optics, but what about results?
Mulino announced that Panama would hastily withdraw from Beijing’s Belt and Road Initiative. The Chinese foreign ministry condemned Mulino’s decisive shift in relations. Furthermore, before Rubio’s arrival, the Panamanian government had undertaken an audit of the twenty-five-year no-bid extension agreement with Hutchinson, which could create a process for allowing another company to operate the Balboa and Cristóbal ports.
At least one item of dispute emerged from the bilateral meeting. The Panama Canal Authority outright dismissed the claim that it would waive transit fees on US military vessels, which already have priority access to the canal, contradicting a State Department announcement. Mulino prepared to speak with Trump about the canal on February 7, but their phone call was postponed.
The canal problem is a decade in the making, and it will not be resolved in a week. Rather, Mulino will draw increasingly closer to the United States as he orchestrates a decoupling from China. In doing so, Mulino must navigate Panamanian politics, for which the Trump administration should be willing to overlook Mulino’s nationalist sensibilities. Shared interests will eventually produce a mutually agreeable outcome: America wants a sovereign and secure canal, and Panama wants to administer a sovereign and secure canal.
