Panama successfully navigates US-China tensions over canal

After a year caught between the United States and China, Panama has taken a decisive step to distance itself from the escalating geopolitical rivalry — a strategy that could offer a blueprint for other small nations navigating great-power competition.

The country’s Supreme Court recently ruled that concession contracts with Hong Kong conglomerate CK Hutchison, which operated ports at both ends of the Panama Canal, are unconstitutional. The decision effectively removes the company from control of facilities surrounding the strategic waterway.

“Panama will not be threatened by any country in the world,” President José Raúl Mulino said on Feb. 5. He stressed that no single company will again be allowed to hold operational rights over the canal’s key ports. The government has already begun reviewing the structure of outsourcing contracts tied to critical infrastructure management.

Under the new framework, Panama is expected to shorten concession periods from the current 25 years and introduce stricter renewal reviews. The government and the Panama Canal Authority are also poised to take on more prominent operational roles to prevent future political disputes. Until a new arrangement is finalized, a subsidiary of Denmark’s A.P. Moller-Maersk will temporarily manage the ports.

CK Hutchison, meanwhile, announced on Feb. 4 that it had initiated international arbitration proceedings against Panama. Beijing also protested the move, warning that Panama’s actions seriously harm the legitimate rights and interests of Chinese and Hong Kong companies and that the country would “pay a high price.”

CK Hutchison subsidiaries have operated the Port of Balboa on the Pacific side and the Port of Cristóbal on the Atlantic since 1997. The Supreme Court challenged the 25-year renewal contract signed in 2021.

In July last year, Panama’s comptroller general filed a lawsuit before the Supreme Court alleging that CK Hutchison engaged in illegal conduct and improperly obtained at least $300 million.

The legal proceedings followed a proposed $22.8 billion acquisition bid last spring by a consortium led by U.S.-based BlackRock — a transaction that stalled amid strong opposition from the Chinese government.

The issue gained global attention after U.S. President Donald Trump, who returned to office in January 2025, claimed China effectively controlled the canal. However, Washington had already voiced concerns during the Biden administration about a Hong Kong-based company operating both sides of the waterway. In the nearly 30 years since Hutchison assumed port operations, the security environment between the United States and China has shifted dramatically.

In the 1990s, China was widely seen as the “world’s factory.” Since then, it has emerged as a major power rivaling the United States, advanced its Belt and Road Initiative, and expanded its footprint in strategic infrastructure worldwide. In 2020, Hong Kong’s governance effectively came under Beijing’s control.

Today, CK Hutchison — once regarded as a highly capable commercial operator — is increasingly viewed through a geopolitical lens. In the event of a Taiwan crisis, U.S. naval and supply vessels would transit from the East Coast to the Pacific via the Panama Canal, making control of adjacent port infrastructure a non-negotiable issue for Washington.

Responding to Trump’s criticism, Mulino announced Panama would withdraw from the Belt and Road Initiative but avoided direct confrontation with China. Panama cannot afford to damage ties with Beijing, a key export market and a major user of the canal.

The United States has long played a central role in Panama’s history, supporting its independence from Colombia and constructing the canal. By removing CK Hutchison while framing the move around contractual misconduct rather than geopolitics, Panama has sought to balance its relationships — satisfying U.S. concerns without overtly attacking China. The legal framing also complicates any attempt by Beijing to challenge the move internationally on grounds of discriminatory treatment.

In recent years, China has increasingly avoided direct control over politically sensitive infrastructure, instead embedding itself within critical systems and equipment supply chains.

Chinese heavy machinery giant ZPMC now supplies a significant share of port cranes worldwide, including in the United States.

In Latin America, China has provided Venezuela with radar and air defense systems and supplied Cuba with communications interception equipment. Beijing has steadily positioned itself as an indispensable component of national security architectures in parts of the region.

Source: Valor Econômico

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