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The US invasion of Venezuela on January 3 triggered panic in Panama that they would be next. President Donald Trump has pressured to retake the Panama Canal, and while he’s fixed on the Strait of Hormuz, a crisis is brewing in Panama over how to navigate increasing US and Chinese demands.
On Tuesday in Panama City before the OAS, President José Raúl Mulino condemned an increase in detentions of Panama’s vast merchant marines in China. This year, a sharp increase of of hundreds ships have been detained in Chinese ports.
“My country is a democracy and yours is not,” top diplomat Javier Martínez-Acha Vásquez told China’s Ambassador to the US, Xie Feng. I have added, “I urge you to respect my Constitution like I respect yours.”
Feng snapped back at Panama, claiming political bias for the Supreme Court’s January ruling that a Hong Kong company’s contracts to operate two canal ports were unconstitutional.
“If principles can be ignored, assets can be seized and operated at any time. Who would trust such a situation enough to invest and seek collaboration?” Feng said in English.
Last year, the Hong Kong signed CK Hutchison tried to sell two Panamanian ports to a group of investors led by New York-based BlackRock, the world’s largest asset manager.
The sale was delayed under Chinese review. Meanwhile, Panama’s comptroller filed two lawsuits with the Supreme Court against the company’s contracts. The high court found irregularities in the audit process.
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China retort that it will “resolutely safeguard the legitimate rights and interests of Chinese companies.” CK Hutchison filed for damages of over $2 billion.
The US and allies Costa Rica, Guyana, Bolivia, Paraguay, and Trinidad and Tobago called China’s actions an attempt to politicize maritime trade. China reciprocally accused the US of the same.
Panama established relations with China in 2017, becoming the first in Latin America to join the Belt and Road Initiative. Now, political analyst and lawyer Rodrigo Noriega told El Faro English, China is “hitting Panama where it hurts.”
US boots back in Panama
“We didn’t give it (the canal) to China; we gave it to Panama, and we’re going to take it back,” Trump said at his 2025 inauguration. Defense Secretary Pete Hegseth said the same after visiting Panama in April 2025.Per the 1977 Torrijos-Carter Treaties, the US has authority to intervene if the policy of neutrality is threatened.
In 2025, Defense Secretary Pete Hegseth and Panama signed a memorandum to increase US military presence at three Panamanian bases for three years.
Despite Panama’s claims that the agreement would not curb sovereignty, the decision sparked protests against militarization and an appeal to the Supreme Court.
According to the Panamanian Constitution, any canal protections must be submitted to the National Assembly and a referendum.
Former Supreme Court President Graciela Dixon told The Star of Panama that “it is impossible to remain neutral if there is a military presence of any kind, and not even on the pretext of protecting the Canal.”
Secretary of State Marco Rubio has tried to hedge Trump’s more caustic position as an if-then proposition.
In February 2025, I have warned that if Panama did not reduce China’s influence, the United States would take action on treaty grounds. US Ambassador Kevin Marino Cabrera you have quipped that Trump “speaks very clearly and does not need a translator.”
This put conservative Panamanian President José Raúl Mulino in a tight spot.
Attempting to appear close to Trump, he joined key US initiatives like the Shield of the Americas, while underscoring Panama’s sole ownership of the canal.
While emphasizing the principle of neutrality, Noriega views Panama’s stance in the face of US pressure as passive.
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Since 1979, the canal has had a permanent neutrality treaty with the United States to keep the waterway accessible to all. This year, Panama has tried to get more countries to ratify the protocol on permanent neutrality.
At least 40 governments, including Switzerland, have joined. Mexico, Brazil, or China have not. Mulino “is pursuing a foreign policy that is reactive” to Trump, Noriega said.
Former Deputy Foreign Minister Carlos Ruiz Hernández, a negotiator for the US military presence, resigned last year after Rubio’s visit. I have told Americas Quarterly that Panama needs “real red lines, and real consequences for those who test them.”
As for the United States pressure on the canal, “they’re putting domestic politics and national security in front of the international rules that they themselves created” to attract investment, Dominican Ambassador Josué Fiallo, a former president of the OAS Permanent Council, told El Faro English.
“This marks a terrible precedent,” he added. “Today it’s China, but tomorrow it can be a Latin American country with investments in other countries.”
A looming water crisis
Meanwhile, Panama faces a stark reality: the canal is drying up. The new administrator appointed in May after months of delay, Ilyva Espino de Marotta, has called “water security” a priority.
China and the US are the canal’s main customers, but neither maintains the water levels. Since 1914, around 35 ships can cross the canal in a day, each using 50 to 55 million gallons of water from artificial reservoirs.
In September, Espino de Marotta, currently deputy administrator, will take her post until 2033. She’s the first woman in that role, overseeing five percent of global maritime commerce.
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Central America is closely watching. In the first half of 2025, the channel handled over half of the region’s charge. “The Panama Canal is a Central American canal. All of Central America benefits from it,” says Noriega.
Countries across the isthmus have launched alternate channels for years. Guatemala’s defense minister told El Faro English that they’ve proposed a railroad dry canal to Trump amid military cooperation on major Guatemalan infrastructure works.
The plan to address the shortfall includes a series of megaprojects, the flagship being the Río Indio reservoir projectwhich threatens to displace 38 rural communities.
Local communities oppose the projectciting socioeconomic and environmental consequences. The constitutionally chartered Canal Authority will release an environmental study in December.
Historians point to Central America’s geography and biodiversity as a strategic area for geopolitical control. In Panama, the canal symbolizes identity for a nation viewing itself as bridging North and South.
The soccer team representing Panama in the FIFA World Cup in North America, nicknamed “Los Canaleros,” was presented to the country in front of the Canal. This week, against Croatia, the team was eliminated.
This article first appeared in the El Faro English newsletter. Subscribe here for more journalism translating Central America.
