In 1989 President George H.W. Bush sent 20,000 American troops to Panama to arrest Manuel Noriega, who had been indicted in the United States on drug-trafficking charges. It was the last major American military operation in the region before the 2025 Caribbean naval deployment.
The Panama Canal has become a battlefront in the power struggle between China and America. Port terminals at both ends are operated by CK Hutchison, a Hong Kong-based conglomerate. Donald Trump has demanded the canal's return, declaring at his inauguration: "China is operating the Panama Canal and we didn't give it to China, we gave it to Panama, and we're taking it back."
A $23bn deal announced in March 2025 would transfer the canal terminals, along with 41 other ports in 22 countries, from CK Hutchison to BlackRock and MSC, a Swiss-Italian shipping giant. China sought to block or reshape the deal by proposing that COSCO, a state-owned Chinese shipper, join the buyers.
The canal allows the US Navy to shift ships between the Atlantic and the Pacific. Donald Trump has cited the need to protect sea-lanes around America as a reason to take control of both the canal and Greenland.
Lake Gatun, in the middle of the country, was created in 1913 by damming the Chagres river. It is the main source of water for the canal's locks and for Panama's largest cities, supplying half the population. During droughts—worsening because of climate change—the number of ship crossings must be cut while taps run dry. The canal handles around 40% of America's cargo, equivalent to about 5% of global sea trade annually, or $270bn. Despite a 29% drop in transits in 2024 owing to low water, revenues from sky-high auction fees held steady.
In February 2025 the Panama Canal Authority (ACP) approved a $1.6bn project to dam the Indio river, creating a reservoir connected to Lake Gatun by a nine-kilometre tunnel. The dam would displace 630 families; $400m of the budget is for resettlement. President José Raúl Mulino backs the project. The ACP approved it shortly after Marco Rubio visited the canal in February, though the ACP denies American pressure influenced the decision. Local farmers have protested, arguing the project breaks the Escazú Agreement, a regional treaty on environmental rights.
Panama is a signatory to the Escazú Agreement, a regional treaty on environmental rights in Latin America.
On July 30th 2025, three days after the BlackRock-MSC deal reached an impasse (China refused to support it unless COSCO was included with a veto), Panama's comptroller-general Anel Flores filed two cases with the Supreme Court asking it to revoke CK Hutchison's contract. One case alleges breach of contract; the other alleges unconstitutionality, arguing that the constitution bars foreign governments from acquiring title over Panamanian territory, which would require the state to assert that China controls the ports. An earlier audit accused CKH of manipulating its finances, with the state missing out on $1.3bn due to alterations made to the contract in 2002.
On January 29th 2026 the Supreme Court ruled that CK Hutchison's contract breaches Panama's constitution. The decision cannot be appealed domestically. In February 2026 Panamanian authorities handed temporary operation of the terminals to Maersk and MSC after the ruling. Maersk subsidiaries had already bought the railway running between the two ports in April 2025 and are in pole position to win the new tenders, risking charges of favouritism. China detained dozens of Panama-flagged ships in retaliation, and told Maersk and MSC to cease operations at the Panama port. CK Hutchison has sued Panama for billions; the long-term management of the port remains in question.
Marco Rubio, America's secretary of state, said the United States was "encouraged" by the ruling. China's Hong Kong and Macau Affairs Office called it "absurd" and "pathetic", adding that Panama would pay a "heavy price". On February 3rd CK Hutchison said it would pursue international arbitration, which could prove costly for Panama's political elites who have accommodated CKH over several administrations. China might also limit Panamanian-flagged ships, cut infrastructure financing or push ahead with alternative trans-oceanic trade routes.
The ruling further dents Panama's investment credentials; in 2023 the Supreme Court had ordered the closure of Cobre Panama, a vast, foreign-owned copper mine, and the country lost its investment-grade credit rating four months later. The Panama Canal Authority (ACP) announced terms for two new ports and a liquefied-petroleum-gas pipeline, saying tenders would be open to firms from any country—but were a Chinese company to submit the most competitive bid, the ACP would come under pressure to find ways to reject it or risk angering the United States all over again. The squeeze Donald Trump has put on Panama could become a blueprint for the rest of the Americas, as the United States seeks a hemisphere "free of hostile foreign incursion or ownership of key assets".
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