Panama Squeezed Between U.S. and China as Canal Becomes Geopolitical Battleground

(Analysis) Recent agreements between Panama and the United States, confirmed by official statements and government documents, reveal the real struggle for control over the Panama Canal.

The U.S. and Panama signed a memorandum this April, allowing U.S. military personnel to use former base sites near the canal for joint training and security operations.

The Panamanian government insists these are not permanent bases, but the agreement enables U.S. troops to rotate through these facilities for renewable three-year periods.

The U.S. Defense Secretary, Pete Hegseth, traveled to Panama for the first time in decades, underscoring the canal’s renewed strategic value. He declared that the U.S. would help Panama “reclaim” the canal from Chinese influence.

Panama’s President, José Raúl Mulino, has publicly rejected any permanent U.S. military presence or territorial concessions, but the reality is more complex.

Panama’s leaders sent back several drafts of the agreement to remove language about permanent bases, but the final version still allows for significant U.S. access and control.

The Panama Canal handles over 40% of U.S. container traffic, valued at around $270 billion each year. American warships may soon receive free and prioritized passage, a move that would lower costs for U.S. shipping companies and military logistics.

U.S.-Panama Agreement

These arrangements follow Panama’s withdrawal from China’s Belt and Road Initiative in February, a decision announced after U.S. diplomatic pressure.

The U.S. has voiced concerns that Chinese-owned port facilities in Panama could be used for espionage or to gain leverage over global trade. China remains the canal’s second-largest user, and Chinese companies operate major ports at both ends of the waterway.

The U.S. views this as a direct threat to its commercial and security interests. In response, Panama has conducted audits and pressured Chinese operators to sell their concessions to U.S. firms, though these sales have not yet closed due to regulatory delays in China.

The joint U.S.-Panama statements about the new agreement have not always matched. Panama’s Spanish-language version included a line about “inalienable sovereignty” over the canal, but the U.S. English version omitted it.

Panama formally requested a correction, exposing the diplomatic tension behind the scenes. Even as both sides stress cooperation, the U.S. has not ruled out military action to secure the canal if it deems it necessary.

Panama’s Struggle for Sovereignty

Panama’s constitution prohibits foreign military bases, and the country dismantled its army after the 1989 U.S. invasion. The government frames the new agreement as a temporary, defensive measure.

However, union leaders and civil groups in Panama have protested, calling the deal a betrayal of national sovereignty and warning of a return to the days of foreign military occupation.

The U.S. military presence in Panama now fluctuates from a few dozen to a couple hundred personnel, depending on joint exercises. The new agreement could increase these numbers, though officials have not disclosed exact figures or timelines.

Both sides claim the deal is about protecting the canal from cyber threats and ensuring safe passage for global trade, but the underlying reality is a contest for influence between Washington and Beijing.

Panama finds itself with little room to maneuver. Its leaders must balance economic ties and security guarantees from the U.S. against the commercial importance of Chinese investment.

The canal’s neutrality and Panama’s sovereignty remain at risk as both superpowers use economic and military tools to shape outcomes. For Panama, the struggle is not just about the canal, but about its ability to chart an independent course.

In a world where the interests of giants leave little space for small nations, Panama seeks to assert true autonomy.