The Canal and the Dragon

China’s Growing Footprint in Panama and Latin America has Washington worried, but the reality is more nuanced than it seems.

On Christmas Day, President-elect Donald Trump tweeted a claim that Chinese forces were “lovingly, but illegally, operating the Panama Canal.” The comment was swiftly rebuffed by Panamanian President José Raúl Mulino, who dismissed the assertion as baseless. Yet, the statement ignited a larger conversation about China’s growing influence in Panama and across Latin America, a region once considered the undisputed domain of American influence.

The Panama Canal, completed in 1914, is a vital artery of global trade. Built and controlled by the United States for much of the 20th century, it was returned to Panamanian control in 1999 under the Torrijos-Carter Treaties. For Washington, the canal’s transfer symbolized a relinquishment of hegemony in its ‘backyard,’ a term used to describe Latin America in U.S. foreign policy circles. Today, this region has become a contested space, with Beijing making significant inroads.

China’s Belt and Road Initiative (BRI), launched in 2013, had established a foothold in Panama. In 2017, Panama switched diplomatic recognition from Taiwan to Beijing, and a year later became the first Latin American country to join the BRI. Chinese firms now operate critical infrastructure globally, including ports near the canal. These developments have led U.S. policymakers to raise alarms about China’s capacity to influence trade and security dynamics in the hemisphere.

At the heart of the concern are the ports at either end of the Panama Canal, managed by Hutchison Ports PPC, a subsidiary of Hong Kong-based CK Hutchison Holdings. Although CK Hutchison is not directly owned by Beijing, Hong Kong’s integration into China under its National Security Law has blurred the lines between private enterprise and state control.

Ninety percent of U.S. military cargo is shipped via commercial vessels. Control over ports provides logistical insights into troop movements and potential vulnerabilities.

China’s relationship with Latin America extends far beyond the canal. The region has become a testing ground for Beijing’s economic diplomacy. China is now the largest trading partner for several Latin American countries, surpassing the United States in nations like Brazil and Chile. Infrastructure projects funded by Chinese loans, from railways in Argentina to hydropower plants in Ecuador, are transforming local economies while deepening dependencies on Beijing.

The Belt and Road Initiative has played a central role in this engagement. By funding infrastructure and offering loans, China has presented itself as a partner in development. However, critics argue that such investments often lead to debt dependencies. Ecuador, for instance, has committed vast portions of its oil revenue to repaying Chinese loans, raising concerns about sovereignty and economic vulnerability.

While Beijing has been cultivating relationships in Latin America for over a decade, Washington has struggled to articulate a coherent response. Moreover, U.S. credibility in Latin America remains tarnished by decades of interventionist policies and neglect, leaving an opening for China to step in.

Panama’s embrace of Beijing has not been without domestic scrutiny. Public opinion remains divided on the benefits of Chinese investment. While some view Beijing as a necessary economic partner, others fear over-dependence. China, for its part, has been careful to position itself as a supporter of Panamanian sovereignty. Chinese officials frequently highlight their historical support for Panama’s struggle against U.S. control of the canal, a narrative that resonates in a region long wary of American dominance.

The case of the Panama Canal underscores a broader shift in Latin America’s geopolitical landscape. From ports in the Caribbean to lithium mines in Bolivia, China’s footprint in the region is vast and growing. For Washington, this is a wake-up call. While the United States remains the largest source of foreign direct investment in Latin America, its influence is waning. To counter Beijing’s advance, the U.S. must offer more than just warnings about Chinese intentions. It needs to rebuild trust with Latin American partners.

The U.S. must acknowledge that its historical dominance in Latin America is no longer guaranteed. The region’s countries are not pawns in a great-power game but independent actors seeking the best deals for their development. Washington’s challenge is to respect this agency while countering Beijing’s growing influence.