Secretary of State Marco Rubio’s visit to Panama signaled a clear message: the U.S. is determined to reassert its influence in Latin America and the Caribbean amidst the People Republic of China’s (PRC) expanding reach, while navigating complexities with a region that has continuously turned to Beijing for economic partnerships and investment. However threatening partners, while a short term tactical approach, will not prove to be a long term strategy for better engaging economically with the region.
A Shifting Diplomatic Landscape
Rubio made a calculated choice by starting his term as Secretary of State in Panama and Central America by traveling there first as secretaries of state typically travel to Europe, Middle East, or even Asia to fortify their alliances. However, Rubio’s first trip reflects a change in emphasis as PRC influence in Latin America continues to increase. He also made a special visit to The Panama Canal.
What’s At Stake? Trade and Investment And The Panama Canal Allows for Much Shorter Shipping Routes
The PRC has invested heavily in infrastructure projects, such as building a $1.3 billion port terminal on the Atlantic side of the Panama Canal, part of the PRC trying to establish itself in the Western Hemisphere. In 2023, the U.S. was Panama’s largest trade partner exporting a total of $5.29 billion into Panama, and $385 million in imports into the U.S. In comparison, China’s exports to Panama equaled to $4.43 billion and $385 million in imports to China. Now, while the U.S. remains as the top trading partner for Panama, the PRC has been increasing trade especially in key sectors such as technology and infrastructure.
The United States finds this increasing influence in its own backyard to be a worrying trend. Rubio used his trip to remind Latin American countries that, despite the attraction of PRC investments, the United States is still a vital partner in the region, especially in Panama, a vital entry point for international trade. President Trump’s “America First” foreign policy, which has frequently been criticized for emphasizing U.S. national interests and security over the long-term relationships that have historically defined U.S.-Latin American ties, makes the visit especially noteworthy. However, it appears that Rubio’s diplomatic outreach aims to provide a more nuanced strategy that strikes a balance between the need for stronger regional partnerships and American interests.
Does China Control the Panama Canal?
The Chinese have a long history in Panama. On March 30, 1854, The Sea Witch Clipper arrived to Panama with 705 Chinese to work in the transoceanic railroad which was critical for constructing the Panama Canal. Over 171 years later, President Trump states that “China is running the Panama Canal.” However Dr. Vasquez, CEO & Canal Administrator and Alberto Aleman former Administrator of the Panama Canal Authority (PCA) , both refuted claims that the Panama Canal is controlled by China. What many don’t know is that the PCA is actually an autonomous apolitical authority in which Panama changed its constitution so that irrespective of which political party is in power, the Panama canal should remain politically neutral.
Its primary goal is to provide consistent, safe, efficient and uninterrupted transit for international trade. No foreign entity, Chinese or other, controls the Canal. Because of this and other factors, PCA currently has a higher credit rating than the Republic of Panama. (A3/BBB+/WD vs. Baa3/BBB-/BB+.
At the heart of this controversy is CK Hutchison, a company with a history dating back two centuries that is owned by Hong Kong’s richest man. The company operates infrastructure assets around the world — including port terminals at the Atlantic and Pacific ends of the canal, through which 40 percent of U.S. container traffic transits annually. Rubio claims that if the Chinese Communist Party told Hutchison to shutdown the Port in Panama they would be forced to comply. However, Hutchison does not own the land in the ports and does not have the legal authority to do this as it conflicts with the treaty of neutrality.
Countering PRC Influence
In reaction to Trump’s harsh rhetoric, Panamanian President Jose Raul Mulino, who has long attempted to maintain a pro-American position, has recently found himself balancing a tightrope. Panama will continue to control the canal as President Mulino has assured the world’s leaders and citizens. However, the United States is increasing pressure on the Panamanian government due to the ongoing rise in PRC influence in the country with a potential risk to the Panama Canal.
This decision reflects the larger context of U.S.-China relations, where Washington has been alarmed by China’s ambitions to expand its political and economic influence. As a vital hub for trade routes and a significant part of the global economy, Latin America has become a major battleground in this global struggle. During Rubio’s visit, the U.S. was able to reassure Latin American countries that they are not being overlooked in favor of priorities that are farther away.
Latin America Perceptions
Latin America has responded differently to the Trump administration’s “America First” stance. There has been disagreement among the region’s leaders, with some voicing extreme discontent at Trump’s strict positions on trade, immigration, and foreign aid. Given that Trump’s border security proposals frequently jeopardize diplomatic efforts in the region, the harsh rhetoric regarding immigration in particular has caused a great deal of tension with Latin American leaders. Claudia Sheinbaum, Mexico’s President was prepared to implement reciprocal tariffs when she negotiated with Trump.
Rubio’s visit does, however, present a chance to rebalance U.S.-Latin American ties. Despite being deeply anchored in American interests, his strategy should have been more pragmatic than the combative approach that-characterizes Trump’s presidency. Rubio reassured leaders in Latin America that the United States is still dedicated to working together by concentrating on regional alliances and thwarting China’s influence. However it is also critical that Rubio understand that the US and China can and should cooperate when their national interests align. Developing frameworks to work with China and other nations to provide humanitarian relief impacted by natural disasters or global pandemics is in the interest of all of humanity.
Assessing the Success
In the end, what did Rubio get? The U.S.’s ability to increase its economic and security alliances with Panama and other Central American countries, as well as Rubio’s ability to persuade these nations to reevaluate or reduce their economic connectivity with China, are important short term success factors.
However, the true long term effectiveness of Rubio’s visit will depend on the United States’ overall capacity to reestablish a congenial relationship in the LAC. This will necessitate not only financial incentives, but more of an all-encompassing strategy for regional economic development that tackles problems such as migration, poverty, and corruption—concerns that have long been sources of instability in the region and which USAID has been uniquely positioned to. China is has already initiated filling a void left behind by the Trump administration’s abrupt retrenchment of USAID. China is already reaching out to partners,” said Francisco Bencosme, who served as USAID’s China policy lead during the Biden administration.
While Panama is the first country to publicly withdraw from China’s Belt and Road Initiative, that does not mean it could not easily rejoin in the future. It will also be crucial to evaluate how the leaders of the region react to the “America First” policy. Will they view it as a diplomatic misstep or a reaffirmation of U.S. strength in the region? President Mulino, continues to exercise caution in juggling Panama’s demands with American expectations.
Policy Recommendations for the US
To strengthen its stance and reputation in the LAC, the U.S. should prioritize policy that builds robust trade and investment relationships with the region, rather than focusing on limiting its partner’s access to trade freely and build their own relationships. Leland Lazarus Associate Director at Florida International University notes, “over the past several decades, Latin America and the Caribbean has been deprioritized in terms of U.S. engagement.”
A collaborative approach is necessary as well as recognizing moments where collaborating with the PRC can align with U.S. national and economic interests. Additionally, a realignment of lending regulations to enable institutions like the U.S. Development Finance Corporation to provide financial support to countries like Panama, to then delink them from World Bank and lower economic income standards. Such proposal is certainly gaining momentum. Finally, removing per capita income as a criterion for eligibility could make said loans more accessible, enhancing a region’s development and securing U.S. influence. The U.S. can better foster the region’s development and preserve its power in the presence of increasing PRC competition by modifying these policies.
Can the US reclaim the Panama Canal?
The Panama Canal itself continues to be one of the most controversial topics in U.S.-Panama relations. Although the United States gave up control of the canal in 1999, there has been some discussion about whether or not the U.S. should try to regain control. There would be major diplomatic and legal obstacles to any attempt to change this arrangement, including possible opposition from international organizations, let alone American allies and adversaries.
Over 5% of global trade depends on the Panama Canal, and controlling it has significantly increased Panama’s income. Mulino has emphasized that the Panama Canal has been managed responsibly for 25 years and that Panama’s sovereignty over the canal cannot be compromised. In addition to breaking international law, any attempt by the U.S. to regain control of the canal would have major economic ramifications, possibly destabilizing the area and harming trade ties between the United States and Panama.
The U.S. needs a long-term strategy of better engaging economically with Panama and the region not threatening its partners as it strives to compete with China. Whether the U.S. can continue to have an impact in a region that is becoming more influenced by external factors beyond its control will depend on Rubio’s diplomatic efforts. In the Book “The Art of Warm author Sun Tzu writes, ”If you know the enemy and know yourself, you need not fear the result of a hundred battles.” What the US needs to do most is to better know and grow with Latin American markets and trade.
Special thanks to Roxana Amiot for her exceptional thought leadership, research, and editorial contributions to this article. Thanks to Jonah Kim for assisting with providing info-graphics.