Though smaller than South Carolina, Panama holds outsized importance for the United States' economy and national security.
Approximately 40 percent of all U.S. container shipments, worth around $270 billion annually, transit the Panama Canal. Globally, the canal handles nearly 5 percent of seaborne trade. In the event of a conflict between China and Taiwan, the U.S. Navy would rely on rapid deployment of submarines and warships through this vital waterway to the Pacific Ocean.
Since December, former President Donald Trump has repeatedly referenced Panama in speeches and social media, threatening to reclaim control of the Panama Canal, which the United States managed from 1914 until 1999. These demands have pressured Panama's conservative President, José Raúl Mulino, into concessions such as negotiating compensation for U.S. Navy vessels using the canal and allowing rotational deployment of U.S. military personnel at Panama-controlled bases, despite the closure of permanent U.S. bases two decades ago.
Some of these demands aim to counteract growing Chinese commercial influence in Panama, which intensified after Panama severed diplomatic ties with Taiwan in 2017. During a February visit, U.S. Secretary of State Marco Rubio warned President Mulino about potential treaty violations linked to China’s presence. Subsequently, Panama announced its withdrawal from China’s Belt and Road Initiative—a decision China attributed to U.S. coercion—and conducted audits of Chinese-controlled canal-side ports following concerns about interference.
Concerns about expanding Chinese influence are shared by both the previous and current U.S. administrations. However, the benefits Panama gains in exchange for these concessions remain unclear, fueling discontent among Panamanians already frustrated with their political leadership.
One of Trump’s latest requests—currently rejected by President Mulino—calls for free passage of U.S. commercial vessels through the canal. This demand strikes at a point of national pride and threatens a key revenue source representing 7 to 10 percent of Panama’s annual government budget. Across the country, students, labor unions, environmentalists, and Indigenous activists have organized protests opposing government policies perceived as capitulating to U.S. pressure rather than safeguarding Panamanian sovereignty.
By persistently pressing Panama for concessions, Trump risks undermining a crucial regional ally, potentially destabilizing the country politically, economically, and socially. Such instability would have serious implications for the United States, especially if it jeopardizes the operational security of the Panama Canal.
Historically, Panama was not considered a likely candidate for political upheaval. Between 1970 and 2019, it ranked as the 16th fastest-growing economy worldwide on a per capita basis, with significant poverty reduction. While Latin America’s economies expanded at an average annual rate of 0.9 percent over the past decade, Panama’s real GDP growth exceeded four times that rate, fueled by sectors like finance, construction, and private investment, as well as the professional, apolitical management of the canal following U.S. control transfer in 1999. Both Panamanian and American businesses, particularly U.S. energy exporters, benefited from the canal’s modernization and capacity expansion.
Despite this growth, economic gains have been unevenly distributed. Throughout the 2000s and 2010s, Panama's government allocated a smaller percentage of GDP to public education than the Latin American average. Educational outcomes lagged behind regional peers, and a 2023 census revealed that 25 percent of homes lacked continuous access to potable water during dry seasons. Income inequality remains stark, with the wealthiest 20 percent receiving over half the country’s income, while the bottom 20 percent earn just 3.5 percent. Panamanians rank among the most dissatisfied in Latin America regarding democracy, political parties, and public services.
In October 2023, widespread frustration erupted into mass protests. Unions, teachers, and citizens blocked key roads for 25 days to oppose a copper mining contract, marking the largest mobilization in decades. The protests reflected perceptions that the government favored opaque private and foreign interests over the public good. At least four people died during the unrest, which cost Panama about 2.3 percent of its previous year’s GDP.
Current dissatisfaction now risks escalating, fueled not only by domestic grievances like corruption and inequality but also by perceptions that President Mulino prioritizes appeasing U.S. demands over national interests. Public approval of Mulino’s administration dropped from 51 percent in January to 26 percent by March. Recent visits to Panama revealed palpable tensions, with local experts warning that protests similar to those in 2023 could reignite following any perceived injustice.
In March, Mulino enacted a contentious law increasing employee contributions to the public pension system, which faced financial shortfalls. On April 23, teachers’ unions and a major construction workers’ union launched strikes opposing the pension reforms, plans to reopen the copper mine, and an agreement allowing U.S. military personnel rotational access to bases near the canal.
Political rivals for the presidency joined civil society leaders in condemning the U.S. military agreement. In May, after the president suggested the country’s largest public university harbored terrorists, thousands of Panamanians, led by students, staged the largest protest of this unrest wave.
Facing pressure from the private sector to suppress protests and clear roadblocks paralyzing regions like Bocas del Toro, President Mulino vowed, “No matter the cost, this country will not be shut down.” Yet, if unrest intensifies and the government weakens, Panama’s ability to address U.S. concerns about China’s influence or the canal’s vulnerable water supply—which climate change and drought have already impacted—will diminish, potentially increasing costs for U.S. exporters.
If the Trump administration continues to publicly demand further concessions, the most probable outcome is a weakened Panamanian government. Recently, the U.S. ambassador to Panama publicly committed to securing free canal passage for U.S. government vessels. A more discreet diplomatic approach might better protect U.S. interests while minimizing risks.
Trump’s aggressive tactics have demonstrated that strong-arm demands can influence a small country like Panama, even as public distrust toward the government grows with each concession requested.
Should Trump pursue reclaiming the canal through tariffs, sanctions, or other coercive methods, it would likely provoke significant unrest. Such instability would endanger Panama, the United States, and global trade alike, representing the gravest risk linked to this strategic waterway.
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