By Samantha Barnes, International Banker
“China is operating the Panama Canal, and we didn’t give it to China,” US President Donald Trump declared during his inaugural address, which kicked off his second presidential term in January. “We gave it to Panama, and we’re taking it back.” The US president has certainly tried to fulfil his vow since then, ramping up attempts to wrest control of the canal away from China and into the hands of Western investors. But just how successful will American efforts ultimately prove, and just how significantly would China’s presence in Latin America be impacted by a shift in the canal’s control to the United States?
Linking the Atlantic Ocean with the Pacific Ocean, the Panama Canal has become a major flashpoint for rising tensions between the United States and China, both of which heavily use the crucial waterway for global maritime trade. As China continues to make significant inroads into Latin America with its economic might, the US has increasingly zeroed in on the canal and its contested ports as a battleground for influence in the region.
“Ensuring that the world’s ports remain open and secure is critical for global commerce,” Democratic Senator Andy Kim of New Jersey recently told Bloomberg News, adding that China’s growing global network of ports “threatens those objectives”. Chinese analysts, however, have derided such claims. “China is constructing ports for commercial purposes,” according to Wang Dong, a professor at Peking University. “Speculation by some US political figures and think tanks about the threat of Chinese ports is groundless.” China’s Ministry of Foreign Affairs also stated that the way the US is framing China’s port ambitions is aimed at “smearing and disrupting China’s economic and trade cooperation with other countries”.
As far as Panama is concerned, mounting US influence on the Central American country is evident in its decision in early February not to continue its membership in China’s multinational infrastructure project, the Belt and Road Initiative (BRI), which it joined in 2017. The decision was taken swiftly after U.S. Secretary of State Marco Rubio visited the region, which analysts viewed as decisive in shifting the balance in Washington’s favour.
Beijing “firmly opposes the United States using pressure and coercion to smear and undermine Belt and Road cooperation. The US side’s attacks … once again expose its hegemonic nature,” Ministry of Foreign Affairs spokesperson Lin Jian said of the move, adding that Rubio’s actions “unjustly accuse China, deliberately sow discord between China and relevant Latin American countries, interfere in China’s internal affairs, and undermine China’s legitimate rights and interests”.
Then there’s the CK Hutchison Holdings saga. Owned by billionaire Li Ka-shing, the Hong Kong-based firm holds a 90-percent stake in Panama Ports Company (PPC), which was granted a 25-year concession by the Panamanian state to operate the Balboa and Cristobal ports, on the Pacific side and Atlantic side of the canal, respectively. Although this concession was renewed in 2021, the US applied considerable pressure on CK Hutchison earlier this year—to such an extent that in March, the company announced that it had agreed to sell its majority-ownership stake in 43 port holdings worldwide, including the two in the Panama Canal, to a BlackRock-led consortium for around $23 billion.
Beijing responded almost immediately to these dramatic developments—in a comprehensive fashion—by announcing a massive regulatory investigation against CK Hutchison, which forced the company to back away from the proposed sale of the ports. China has also pushed for its largest shipping company, state-owned China COSCO Shipping Corp., to be included in the consortium and given a 20-30-percent stake, as well as veto rights over any arrangement. Such moves have proven successful in putting the deal on ice for several months.
However, Washington is reportedly mulling a new deal in which COSCO would gain a stake in 41 of the 43 ports (five in Latin America and the Caribbean), but not in the two Panama Canal ports, which would stay in the hands of BlackRock and its Western partners. “On paper, the compromise would let the United States claim victory at the Panama Canal,” according to Aidan Powers-Riggs and Henry Ziemer of the Center for Strategic and International Studies (CSIS), writing in Foreign Policy (FP) magazine on October 17. “In practice, it would extend Beijing’s influence at a far larger network of ports—some of which carry greater economic and security risks to the United States than those adjoining the strategic waterway. A deal that Trump could sell as a political win might prove to be a poisoned chalice.”
The Trump Administration has also ramped up its pressure campaign on the Panamanian government to revoke CK Hutchison’s port concession. Should this revocation go through, it could significantly limit China’s presence in the Panama Canal area. As such, the decision ultimately taken by the Supreme Court of Panama on this matter will be crucial in determining the future balance of power over the canal, with the comptroller general having filed two suits in late July seeking to nullify the concession agreement on the basis that the renewal did not follow all the required legal steps.
That said, Jose Ramón Icaza, Panama’s minister for canal affairs, suggested on October 21 that the government will try to remain flexible and potentially even reach an agreement with CK Hutchison. “We are working on a plan in case that [Panama’s Supreme Court] ruling goes against the extension of the contract [for CK Hutchison]. In that case, we have to step in as the Panama Maritime Authority to take control of that concession, without generating a disruption of the supply chain,” Icaza confirmed. “The other scenario that could happen is that at some point, the Republic of Panama can have a mutual agreement with CK Hutchison and have an orderly transition of those port concessions.”
The US’ pressure on Panama has gone so far as to threaten the cancellation of Panamanian officials’ visas. According to Panamanian President José Raúl Mulino, an unnamed figure at the country’s U.S. Embassy is “threatening to take visas”, adding that such actions are “not coherent with the good relationship I aspire to maintain with the United States”.
Mulino nonetheless reaffirmed his position that Panama would maintain the canal’s neutrality. “They’re free to give and take a visa to anyone they want, but not threatening that, ‘If you don’t do something, I’ll take the visa’,” the president added, noting that the underlying issue—the conflict between the US and China—“doesn’t involve Panama”.
That neutrality was also emphasised by Icaza, who recently provided reassurance that, whatever happens to the port concessions, Panama would continue to safeguard global supply chains. “We don’t control the scenarios. But what I can say is that President Mulino and a few members of his cabinet, including myself, are working on a plan for any of those scenarios,” the minister confirmed. “If something happens with those concessions, and we have to step in, [we’ll] be ready to manage those concessions with an interim operator and then do a bidding process for a new concession if that is the ruling and the judgment of the Supreme Court.” The minister also stated that it would likely take “between 12 to 18 months” to prepare a market tender for a new concession contract.
Even if events turn in Washington’s favour, China’s influence over the region’s port infrastructure is unlikely to be diminished significantly. According to the CSIS, 37 port projects across Latin America and the Caribbean are tied to China. The projects vary substantially in nature, ranging from co-financed infrastructure loans to full ownership and operational control by Chinese state-owned enterprises (SOEs).
“Aside from Balboa and Cristóbal, CK Hutchison operates five additional ports across Latin America and the Caribbean: the second- and third-ranked ports of Manzanillo and Veracruz, as well as two others in Mexico and one in the Bahamas. The only port in the top three that lacked a Hutchison presence was Kingston, where the state-owned China Merchants Port exercises significant influence,” the CSIS authors also noted in the FP article. “These are some of the busiest container ports in the region, each servicing billions of dollars of goods arriving on North American shores each year.”