Panama Faces Challenges Amidst China-U.S. Tensions

Panama is experiencing repercussions following its decision to distance itself from Beijing. Recent reports reveal that Chinese authorities have intensified inspections and detentions of ships flying the Panamanian flag. This comes after Panama’s Supreme Court overturned concessions held by Hong Kong-based CK Hutchison at the Balboa and Cristobal container terminals. While Beijing cites safety concerns as the reason, Panamanian officials perceive these actions as retaliation for diminishing China’s commercial influence at both ends of the Panama Canal.

The situation in Panama is part of a larger struggle to determine influence in the Western Hemisphere. Over the past two decades, China expanded its presence by investing in and managing infrastructure projects such as ports, railways, and energy systems across Latin America. These investments extended China’s influence beyond mere commerce. Yet, Washington has begun to counter this reach. The dispute in Panama highlights the complexity of challenging two decades of Chinese infrastructure expansion.

My initial assignment with the U.S. Army placed me in the Panama Canal Zone. Serving there, I realized the canal’s significance beyond its function as a link between the Atlantic and Pacific. It stands as a remarkable engineering accomplishment and a testament to American ingenuity and resolve. Constructed by the U.S. Army Corps of Engineers, it overcame illnesses, treacherous landscapes, and significant technical obstacles, transforming global trade and granting the U.S. a lasting strategic edge in the Western Hemisphere.

Recently, one of us revisited Panama, engaging in discussions that frequently focused on China’s expanding presence near the canal and throughout the country.While many Americans are newly aware, Panamanians have observed this expansion over the years. The U.S. had shifted its focus elsewhere as Chinese firms steadily grew projects within striking distance of one of the world’s vital maritime chokepoints, a short flight from Miami.

In 2017, Panama formally recognized the People’s Republic of China, severing diplomatic relations with Taiwan, and joined the Belt and Road Initiative the following year. Chinese companies pursued major projects like the Panama City-David railway and the Fourth Bridge over the canal. Concerns mainly involved the Balboa and Cristobal terminals, positioned at the canal’s entrances and handled by the Panama Ports Company, a CK Hutchison subsidiary. While China did not control the canal, it was increasing its influence over surrounding commercial infrastructures.

Panama is not alone. For example, China’s state-owned COSCO Shipping runs a deep-water port in Chancay, Peru, while the State Grid of China invested in Brazil’s electrical transmission network. Chinese firms have expanded into various sectors across the region, including energy and telecommunications. In Venezuela, China’s over $60 billion in loans secured oil access and supported the Maduro regime through international isolation. These deals, while commercially motivated, created a network of Chinese influence encompassing ports, power systems, and supply chains.

The U.S. views China’s influence around the canal as a national security issue. It has raised this concern with Panama, promoted American investments, and supported the process leading CK Hutchison to accept a U.S.-led consortium’s offer for the terminal operations. Panama also withdrew from China’s Belt and Road Initiative. When Chinese resistance obstructed the sale, the Supreme Court annulled the port concessions, enabling a management change.

Panama represents the initial attempt to counter China’s broader infrastructure strategy across Latin America. Beijing’s response underscores the importance of controlling infrastructure, which underpins trade, economies, communication, and supply chains. Dependence on these systems allows commercial ties to become political tools. Panama’s shipping registry is already under strain from delays and inspections, risking shipowners relocating their vessels.

The situation in Panama is unlikely to be the last over Chinese infrastructure in the Western Hemisphere. Similar struggles may arise where ports, railroads, electrical grids, and telecommunications networks intersect with national security concerns. China has spent over two decades building this position through investment and long-term relationships. Reversing it will demand U.S. competition with the same determination and patience that facilitated Beijing’s construction of influence.

John Spencer is the chair of war studies at the Madison Policy Forum. Frank Viola is a fellow at the same institution.