The Panama Canal: A Flashpoint in U.S.-China Rivalry

A century-old waterway, a modern-day conflict—why the Panama Canal still shapes global power dynamics.

The Panama Canal, a crucial artery of global trade linking the Atlantic and Pacific Oceans, has long-held strategic and economic significance. Today, it finds itself at the centre of escalating U.S.-China tensions, as both powers vie for influence over this vital waterway. What makes the canal so pivotal, and why has it become a geopolitical battleground?

Panama, a transcontinental nation linking North and South America, is bordered by Costa Rica to the west, Colombia to the southeast, the Caribbean Sea to the north, and the Pacific Ocean to the south. Its strategic location has long made it a hub for international trade and military operations.

Formerly a Spanish colony, Panama gained independence in 1821 and joined Gran Colombia, a union with Nueva Granada, Ecuador, and Venezuela. After Gran Colombia dissolved in 1831, Panama remained part of Nueva Granada, which later became Colombia. In 1903, with U.S. support, Panama seceded from Colombia, paving the way for the construction of the Panama Canal by the U.S. Army Corps of Engineers, completed in 1914.

The Panama Canal was initially under American control until the Torrijos–Carter Treaties of 1977 set the stage for its eventual transfer to Panama. By December 31, 1999, Panama assumed full sovereignty over the canal, marking a significant shift in its administration.

The treaty consists of two key agreements: the Panama Canal Treaty and the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal, commonly known as the Neutrality Treaty.

The Neutrality Treaty ensures that the Panama Canal remains permanently neutral and open to vessels of all nations on equal terms. It also grants both the United States and Panama the right to defend the canal against any threats to its neutrality and secure its uninterrupted operation.

China’s Growing Influence

In recent years, China’s Belt and Road Initiative (BRI) has extended its reach into Latin America, with Panama becoming a notable participant. Chinese investments have flowed into various sectors, including significant infrastructure projects. Notably, Hong Kong-based CK Hutchison Holdings operates ports at both ends of the canal, enhancing China’s logistical footprint in the region.

In a major diplomatic shift in 2017, Panama also became the first and only Latin American country to cut all diplomatic ties with Taiwan and accept the “One China Policy”.

U.S. Concerns

The United States has expressed apprehension regarding China’s expanding presence near the canal. It argues that such influence could compromise the canal’s neutrality and pose risks to global shipping routes and military logistics.

In his inaugural address on 20th January, US President Donald Trump criticised China’s involvement in the Panama Canal and declared the USA’s intention to reclaim control over this strategic waterway. Shortly thereafter, the new US Secretary of State Marco Rubio embarked on his first official foreign trip to Panama, where he met with Panamanian President José Raúl Mulino. Following their discussions, President Mulino announced that Panama would not renew its participation in China’s Belt and Road Initiative when the current agreement expires in 2026. Mulino also claimed that no military threat was posed over the canal’s sovereignty.

Panama asserts full sovereignty over the canal and its neutral operation, as required by international treaties.

However, public opinion is divided. Many see the canal as a symbol of national pride, while others criticise government management and foreign partnerships. Some also share U.S. concerns about growing foreign influence, particularly from China, and its impact on Panama’s sovereignty.

International Implications

The Panama Canal is a vital artery for global trade, handling around 14,000 vessels annually. Geopolitical tensions could disrupt operations, impact supply chains, and prompt shipping companies to seek alternative routes, raising costs and transit times.

Rising U.S.-China tensions over the canal could also reshape Latin America’s political and economic landscape. Countries may have to balance Chinese investments while maintaining strong ties to the U.S., and navigating a complex web of alliances and dependencies.

From the U.S. perspective, ensuring the canal’s neutrality and efficiency requires eliminating Chinese influence in the region. However, as the U.S.-China trade war deepens into a broader strategic rivalry, the canal could become a major flashpoint. Given its role in global maritime trade, any disruption would have significant economic consequences.

A conflict over the canal could severely impact trade and security, causing shipping delays, rising costs, and supply chain disruptions. Additionally, a standoff between two major powers could destabilise Latin America, triggering wider geopolitical repercussions.

The Panama Canal remains crucial to global commerce, making its control internationally significant. Current tensions highlight the complex interplay of national interests, economic ambitions, and strategy. As the situation unfolds, the international community must seek a resolution that upholds the canal’s neutrality and ensures free trade flow.

(The author is a foreign affairs expert. Views personal.)