The Panama Canal is once again at the center of a struggle and should be noticed

Panama is suddenly walking on an even tighter rope over the world’s most famous canal, with the Central American country becoming the latest flashpoint in the simmering global rivalry between the US and China. While a recently announced deal with American asset manager BlackRock (NYSE: BLK) was supposed to have helped deescalate the situation, just the opposite seems to be occurring. 

The high stakes saga—which emerged earlier this year when US President Donald Trump floated the idea of taking back control of the Panama Canal—heated up even more last week when China came out swinging against an agreement that would see a BlackRock-led consortium buy two ports that straddle the shipping lane from Hong Kong-based CK Hutchison Holdings (OTC: CHKUY) as part of a transaction worth $23 billion.

“The relevant companies should think twice, and think carefully about what position and side they should stand on,” Beijing-controlled state newspaper Ta Kung Pao wrote last Thursday in an editorial that was then shared by some government agencies. China frequently uses opinion pieces published by state news agencies to articulate its stance on key issues. The paper accused the US of using “despicable means such as coercion, pressure, and inducement,” and it said the deal threatened China’s principal route for trade with Latin America and the Caribbean. 

The comments were especially noteworthy, as it’s hard to imagine that a deal of that size would have been publicly announced without prior support from Beijing. But that seems to be the case, with The Wall Street Journal reporting on Tuesday that Chinese leader Xi Jinping was angry about the plan, and CK Hutchison’s failure to ask for permission in advance. Xi viewed the Panama ports as a key bargaining chip in ongoing negotiations with the Trump administration as the two governments iron out a number of thorny issues including tariffs, according to the report. 

The US, for its part, has long been arguing that China’s growing influence in Panama has placed its own interests at risk. The canal—built by the US in the early 20th century and then handed over to Panama in 1999—sees 6% of global trade pass through it each year, with the US and China being the first and second largest users, respectively. Trump repeated his administration’s intent to “reclaim” the canal in a speech earlier this month, with some reports that military options are being explored. He’s accused Panama of treating the US “very badly” by allowing the increased Chinese investment.

Shares decline

Amid the latest drama, shares in CK Hutchison—a conglomerate first built by Hong Kong billionaire Li Ka-shing—dropped as much as 8% on fears that political pressure could derail the sale, which some investors saw as paying out a hefty premium for the assets. China, meanwhile, is reported to have launched a security review of the transaction, which hasn’t yet been finalized.

Panama President José Raúl Mulino has defended the country’s sovereignty over the canal, although officials there had previously moved to audit CK Hutchison’s initial concessions for the Balboa and Cristobal ports in an apparent attempt to placate American authorities. A visit late last week by a high-level delegation from the Communist Party of China to Panama that came with an offer to “strengthen exchanges,” however, likely won’t be looked on fondly by American officials. 

“The Canal is Panamanian and will continue to be Panamanian,” Mulino said in a post on X earlier this month. The Central American country operates the zone under the treaties that require a strict “regime of neutrality.” Panama, in other words, is not supposed to pick a side, although that’s increasingly looking like an impossible feat with heated rhetoric being thrown in its direction from both China and the US. 

A Melian Dialogue 

Orlando Pérez, a professor at the University of North Texas at Dallas, and Gabriel Marcella, a fellow at the United States Army War College, detailed the delicate balancing act Panama now faces in a recent essay, although they said the country likely has more to gain by maintaining strong relations with the US.

“The geopolitical reality in Panama City is that the United States-Panama partnership is far more valuable than Chinese port operations,” they wrote, noting the “unique bond” between two countries that’s typified by “many dual citizenships and a cosmopolitan population” after a century of American presence. But they also suggest that the US—despite its “might makes right” hard talk—could be best served by also trying to walk a fine line, “protecting national interests, and respecting the sovereignty of key allies.”

“In the end, maintaining strong US-Panama relations is far more valuable than aggressive posturing by modern Athenians,” the authors added. They were referencing the famous Melian Dialogue that detailed the unsuccessful efforts by the small island of Melos to remain neutral in the Peloponnesian War between Athens and Sparta for hegemony over the ancient Greek world nearly 2,500 years ago. 

It’s Panama that’s now facing its own sort of Melian choice as it tries to maintain neutrality in a much larger global realignment involving two global powers. The ancient story is one of the best known cases of political realism clashing with idealism, but while Athens did take and conquer Melos, it eventually lost the war to Sparta and never regained its former glory.