Photo: MARTIN BERNETTI/AFP/Getty Images
Since his election in November 2024, President Donald Trump has staked out strong positions on the importance of the Western Hemisphere to the United States’ national security interests. A secure, prosperous, and free Western Hemisphere underpins U.S. geopolitical and economic success. Panama is the most strategically significant geography in the Western Hemisphere. With 40 percent of U.S. container traffic passing through the Panama Canal, it rightfully drew President Trump’s attention. Trump has highlighted concerns about the status quo regarding the disposition of the canal, its operation, and People’s Republic of China (PRC)–owned ports dominating the approaches. This commentary will not relitigate the merits of the 1977 Carter-Torrijos treaty, sovereignty, or transit rates but rather highlight the strategic importance of Panama, legitimate concerns over Beijing-owned ports, and the need for sustained diplomatic engagement and U.S. private sector investment.
Since 1903, Panama has been one of the United States’ closest allies in the hemisphere. The Trump administration should build on this partnership. President José Raúl Mulino’s administration offers an opportunity for the United States to reinvigorate this critical strategic relationship. Mulino’s declared alignment with U.S. priorities, such as migration and anti-corruption, bodes well for the bilateral relationship and U.S. leadership in the Americas. This alignment on security issues should be accompanied by policies that build joint economic prosperity for the United States and Panama.
As a new era in U.S. and Panamanian politics emerges, it is time to rethink and reinvest in the strategic and economic relationship. The United States should prioritize institutional ties with the new government, incentivize U.S. investment in strategic infrastructure projects, and strengthen cooperation with Panama’s security forces. A stronger relationship with Panama directly impacts U.S. strategic priorities. These include enhancing national security by maintaining unfettered maritime flow through the Panama Canal, providing a transparent alternative to the PRC investment, especially around the canal, and securing the homeland by reducing the flow of illegal migrants and drugs.
American strategic thinkers in the nineteenth century recognized Panama’s key role in the economic security of the United States. This remains as true today as when the canal was completed in 1914. However, in the 25 years since the United States returned ownership of the Panama Canal Zone to Panama in 1999, Washington did not invest sufficiently in this strategic partnership. It literally zoned out. Long periods without an accredited U.S. ambassador highlighted this trend, most recently with a four-year gap from 2018 to 2022. The most jarring wake-up call came in 2017 when Panama switched diplomatic recognition from Taipei to Beijing becoming the first Latin American country to join the Belt and Road Initiative.
The American System is the core of U.S. economic and national security. The Panama Canal serves as an extension of this system. In 2023, 40 percent of U.S. container traffic passed through the canal. Further, $270 billion of cargo passes through the canal constitutes 5 percent of global maritime trade volume, and 72 percent of that transit goes to or comes from U.S. ports.
The United States is Panama’s number one trading and investment partner: in 2023, trade between the two nations exceeded $12 billion, and the stock amount of U.S. foreign direct investment in Panama nearly reached $4 billion. While the United States has retained this position, the PRC is now the second-largest investor in Panama.
Crucially, the United States has not met Panama’s infrastructure investment needs. U.S. private companies have not been involved in any major Panamanian infrastructure projects in recent decades. The most notable example of the lack of U.S. engagement was during the massive lock expansion to the canal that significantly expanded its capacity. It was inaugurated in 2016 and built by a strictly European consortium. A COSCO-owned vessel was the first to transit the new locks—an important propaganda victory for Beijing. At the same time, Chinese companies stepped in to fill the infrastructure void in other major projects. These projects have the ability to challenge U.S. strategic interests, as noted in SOUTHCOM’s 2024 Posture Statement.
Since Panama’s diplomatic recognition of Beijing, China has invested heavily in strategic infrastructure projects that include ports on both ends of the canal, telecommunications, and road projects worth more than $2.5 billion. For example, a PRC-owned company will build the fourth bridge across the canal, a project that U.S. companies declined to bid on. Hutchison Ports PPC announced in 2021 that it renewed its contract to continue operating the two ports on the canal for another 25 years until 2047.
China’s doctrine of military-civil fusion means that any PRC investment is a de facto instrument of the state and has the potential to hold U.S. strategic interests at risk, including Hutchison Ports PPC, previously a Hong Kong-based consortium now subject to China’s National Security Law. These investments are simultaneous soft power and hard power wins for the PRC in the Western Hemisphere. For example, Huawei’s control of the telecommunications system and access to supervisory control and data acquisition networks present unique vulnerabilities while further entrenching a PRC national champion on Panamanian soil. Recent espionage and hacking operations by the PRC highlight telecom vulnerabilities for critical infrastructure. Huawei, PRC’s telecom champion, made the Colón Free Trade Zone a regional hub for the distribution of its electronic systems. Furthermore, PRC-owned companies are building two more port projects, a cruise ship port on the Pacific entrance to the canal, and a container port on the Atlantic in Colón.
As highlighted in the SOUTHCOM posture statement, PRC facilities at either end of the canal could deny access or cause service disruption via several direct or indirect methods. This could include electronic or cyberattacks, Global Positioning System (GPS) jamming, or physical attacks from containerized anti-ship weapons systems. Any disruption would add weeks to maritime response times for contingencies in the Pacific—a well-known vulnerability since at least World War II. A 2024 congressional hearing validated this idea, noting how Hutchison’s control over the strategic canal’s two ports could interfere with or delay U.S. shipping and military assistance to Taiwan in the event of a conflict. The ports of Balboa and Cristobal are vital points of entry to the Pacific and Atlantic Oceans. Each PRC-built infrastructure project presents another point of vulnerability for the operations and security of the canal.
Panama’s high growth, strategic geography, and longstanding ties to the United States should make it an ideal location for U.S. investment. The United States should have tools available to drive investment in a strategic partner. However, the United States Development Finance Corporation (DFC) and the Americas Partnership for Economic Prosperity (APEP) have not been able to bring the types of investment that would allow Washington to displace Beijing’s investment. The United States would need to lift high-income restrictions on current DFC lending, and the United States Embassy in Panama would need to build out its commercial section to advocate for U.S. companies and facilitate deals. Eventually, the United States and Panama could look for options for PRC-owned companies to divest control of ports and other investments in Panama that put the neutrality and security of the canal in jeopardy.
In a move to align Panamanian priorities with those of the United States, President Mulino explicitly made migration a priority for his administration. Specifically, he has vowed to close the Darién Gap, a roughly 160-kilometer stretch of forest and wetlands that border Colombia and Panama, to migrant flows. The gap, once a nigh-impenetrable barrier, has become a superhighway. The conditions in the Darién are some of the worst along the route north, and the humanitarian situation is critical. President Mulino signed an agreement with the United States that pledged $6 million to forcibly repatriate U.S.-bound migrants. His administration closed at least five migrant pathways near the Colombian border attempting to reroute traffic and increase safety. The U.S. administration should consider shifting law enforcement, defense, and security resources from less cooperative countries to support President Mulino’s firm commitment to facing the problem. Panama’s security forces are already some of the most capable and willing partners in the region but are simply overwhelmed by the scale of the migrant crisis. Assistance could include additional training deployments, equipment transfers, and intelligence, surveillance, and reconnaissance support. This presents a mutually beneficial policy by helping President Mulino deliver on a key campaign promise while stemming the flow of migrants to the United States’ southern border.
Given recent threats by Honduran President Xiomara Castro to eject the United States from its base in Soto Cano, the security partnership with Panama will be more important than ever. In contrast to Honduras, Panama is an enduring and stable security partner. As the United States considers the future of Joint Task Force Bravo (JTF Bravo), perhaps Panama could offer an alternate location. This could potentially allow the United States to lease back bases in the former Panama Canal Zone. Much of the Panama Canal Zone–era military basing infrastructure remains intact and could be quickly restored to support the task force. Relocating JTF Bravo would bolster Panamanian and U.S. capability to deal with the migrant challenge and transnational organized crime. It could be a win-win situation demonstrating both countries’ continued commitment to the security relationship.
While the Mulino administration is willing and able to work with the United States on security issues, the United States should be prepared to develop and execute policies that create economic prosperity and business opportunities for both countries. Economic initiatives demonstrate to the Panamanian people that the U.S. partnership provides tangible benefits while supporting Panama’s ability to resist Beijing’s influence. Panama is already a partner in the U.S.-led APEP, Washington’s new economic framework for engaging the region focusing on opportunities in technology and green investment. It will likely remain a leader in whatever agreement replaces it in the Trump administration. Further, the CHIPS Act of 2022 created the International Technology Security Innovation (ITSI) Fund and appropriated $500 million over five years for the Department of State to “promote the development and adoption of secure and trustworthy telecommunications networks and ensure semiconductor supply chain security and diversification.” The Department of State should continue its partnership with the government of Panama to ensure ITSI Fund resources are spent properly.
However, U.S. policy must also consider infrastructure needs, as such investments have knock-on effects throughout the economy by improving productivity and making other investments more sustainable. This includes improving roads, high-speed cellular data (4G+), and access to clean water in rural areas of the country. U.S. companies should be incentivized to invest or bid on these types of projects. For instance, Dell has a large presence in Panama. Dell’s partnership with Dish Networks was an early mover on 5G Open RAN projects in the United States. Panama could be a regional test market for this technology as an alternative to Huawei.
Additionally, Panama looks to expand its rail network to improve transport routes to agricultural regions and Costa Rica. The U.S. government should work with its domestic engineering and construction firms to compete on this major project. Opportunities outlined in the Americas Act would demonstrate the seriousness of U.S. commitment to economic prosperity in Panama and the broader Americas. Panama could be the centerpiece of a renewed “America Crece” initiative, as special envoy for Latin America designate Mauricio Claver-Carone argued last year. Unlocking private investment from the United States will be key to improving security and prosperity for the United States and Panama. If done correctly, the Trump administration’s focus on the Western Hemisphere is a strategic opportunity to invest in partnerships between consistent allies. At the same time, the Panamanian government will need to improve investment conditions by improving confidence in the judicial system and the rule of law.
While Panama remains one of the safest countries in the region, public security is an essential issue for the populace. Crime rates have ticked upward, with homicides increasing 4.4 percent in 2024. Some Panamanians are quick to attribute at least some of that increase to the influx of migrants from South America. In addition to supporting Panamanian security forces on the border, the United States should continue its robust assistance to public security forces, including counter-narcotics, anti-corruption, and anti-money laundering efforts.
Panama has long been a capable and willing partner in efforts against drug trafficking. While security force cooperation on counter-narcotics remains an important bilateral issue, it could be enhanced by working to strengthen other law enforcement and justice institutions. Improving judicial and rule of law processes would positively impact public perception of government effectiveness and could have knock-on effects on the investment climate. It would also aid in anti-corruption efforts, a key priority for both the Mulino administration and the United States. Panama ranks near the bottom of high-income countries for the rule of law according to the World Justice Project. Mulino should double down on anti-corruption and rule-of-law initiatives. Such efforts would reduce operating space for transnational organized crime while improving the business and investment climate. Investors would be more willing to fund deals if the perception of Panama’s judicial protections grows stronger. A stronger legal system reduces investment risk, paving the way for a stronger economic partnership and growth. Given the Financial Action Task Force recently removed Panama from its “gray list,” the United States ought to ensure it remains off the list by bolstering anti-money laundering programs and capabilities. In addition to the rule of law and public security, U.S. assistance to build out a CFIUS-like capability would help Panama make better decisions on what investments it should welcome from the PRC and those that warrant greater caution or avoidance altogether. CFIUS has served the United States to prevent PRC investments in sensitive areas.
The United States is Panama’s oldest ally. The country holds the key strategic terrain in the hemisphere for U.S. national and economic security. Renewed attention from the United States offers a significant opportunity to build on the historic relationship by strategically investing in Panama’s growth. Investing in Panama, especially in infrastructure and security, would address U.S. security concerns while demonstrating to the average Panamanian that the relationship delivers tangible results. Panamanians already see the effects of Beijing’s investment in infrastructure and the United States needs to prove that it is the better partner. Failure to invest strategically in Panama has the potential to put U.S. economic and national security at risk. Perhaps better than anything else, PRC ports bookending the canal demonstrate this vulnerability. At the same time, the Mulino administration should work to address the concerns of the United States regarding PRC infrastructure and presence in the country and reform the judicial branch to improve the investment and business climate for U.S. companies doing business in Panama. The Trump administration has already nominated Marino Cabrera to fill the ambassador position—a positive step that should be fast-tracked to ensure U.S. representation in Panama. Robust diplomacy, economic engagement, and security partnerships will guarantee America’s strategic interests in Panama and the broader Western Hemisphere.
Andrew Sanders is a principal at Coati Consulting, strategic advisor at the Inter-American Defense College, and former director for Brazil and the Southern Cone at the National Security Council. Ryan C. Berg is the director of the Americas Program and head of the Future of Venezuela Initiative at the Center for Strategic and International Studies in Washington, D.C.
