Trump's Controversial Pursuit of Control Over the Panama Canal Sparks Tensions

Although Panama is a small country—smaller than the U.S. state of South Carolina—it plays a vital role in the economy and national security of the United States.

Annually, about 40 percent of all U.S. container traffic, worth approximately $270 billion, passes through the Panama Canal. Additionally, the canal handles roughly 5 percent of global maritime trade. In the event of a conflict between China and Taiwan, the U.S. Navy would need to rapidly deploy submarines and other vessels to the Pacific via this crucial waterway.

Since December, Donald Trump has repeatedly referenced Panama in speeches, interviews, and posts on social media platform Truth Social, threatening to "reclaim" the canal, which was under U.S. control from 1914 until 1999. His pressure has led to several concessions from Panama’s conservative president, José Raúl Mulino. These include the start of negotiations to reimburse U.S. military vessels for canal tolls and the acceptance of rotational deployments of U.S. military personnel on Panamanian bases. Notably, the last permanent U.S. military base in Panama closed in 1999, a decade after the U.S. invasion.

Some of these demands aim to counter China's growing commercial influence in Panama, which expanded after Panama severed ties with Taiwan in 2017. In February, U.S. Secretary of State Marco Rubio visited Panama and warned Mulino that Chinese presence near the canal could breach bilateral agreements. Shortly after, Panama announced its withdrawal from China’s Belt and Road Initiative, which Beijing described as a result of U.S. coercion. The Panamanian government also audited two ports adjacent to the canal operated by Chinese companies, responding to accusations of Chinese interference.

While concerns about China's expanding influence are not unfounded—similar unease existed during the Biden administration—the critical issue remains what Panama gains in exchange for these concessions. This uncertainty has sparked widespread outrage among Panamanians, who are already frustrated with their government and political elite.

Trump's most recent demand, which Mulino has rejected so far, is that U.S. commercial ships transit the canal toll-free. Such a move would undermine a national symbol and remove a revenue source that accounts for 7 to 10 percent of Panama's budget. In response, protests have erupted featuring students, labor unions, environmentalists, and indigenous groups. These demonstrations not only oppose government policies but also reflect a growing perception—whether justified or not—that Mulino is yielding to Trump rather than defending Panama’s sovereignty.

Though Trump may not see it this way, his pressure tactics risk weakening a key allied government and creating instability. Any economic, political, or social unrest in Panama poses a serious threat to the U.S. If the canal’s operation were compromised, the consequences could be severe.

As an expert on Latin American politics, Panama had never been considered among countries at risk of social upheaval. Between 1970 and 2019, its economy was one of the fastest-growing per capita worldwide. Poverty rates dropped significantly during that period. While Latin America averaged just 0.9 percent annual growth over the last decade, Panama roughly quadrupled that rate, driven by sectors like finance, construction, and private investment, alongside efficient, nonpartisan management of the canal since its transfer in 1999. Both Panamanian and U.S. companies, especially U.S. energy exporters, benefited from the canal’s expanded capacity to ship more natural gas to Asia.

However, the benefits of this growth were unevenly distributed. Throughout the 2000s and 2010s, Panama invested less in education as a percentage of GDP than the regional average. Students scored lower on standardized tests compared to many peers in Latin America, according to 2022 data. A 2023 census revealed that nearly a quarter of homes lacked 24-hour access to potable water during the dry season. In the same year, the wealthiest 20 percent of Panamanians earned over half of the country’s income, while the poorest 20 percent received only 3.5 percent. Panamanians rank among the most disillusioned citizens in Latin America regarding democracy, political parties, and public services.

This frustration boiled over in October 2023 when massive protests paralyzed the country for 25 days over a contentious mining contract. At its core, the unrest reflected deep distrust of a government seen as serving private and foreign interests. The protests resulted in at least four deaths and economic losses equivalent to 2.3 percent of GDP.

Now, that same discontent threatens to escalate again—this time fueled not only by internal issues like corruption and inequality but also by a growing sense that Mulino prioritizes appeasing Trump over Panama’s interests. Public approval of Mulino’s administration fell sharply from 51 percent in January to 26 percent in March. During a recent visit, the dissatisfaction was palpable. “One more injustice could ignite protests like those in 2023,” said Alonso Illueca, a lawyer and academic.

In March, Mulino approved controversial legislation increasing contributions to the public pension system, which faced severe liquidity challenges. On April 23, several public school teachers’ unions and a major construction workers’ union began a strike protesting pension changes, plans to reopen a contentious copper mine, and an agreement allowing U.S. military personnel rotational access to bases near the canal.

Even two political rivals joined civil leaders in publicly denouncing the deal with the United States. Then in May, after Mulino described Panama’s main public university as a “nest of terrorists,” thousands of Panamanians, led by students, marched in what appeared to be the largest protest of this wave of unrest so far.

Mulino now faces pressure from the private sector to crack down on protests, especially in Bocas del Toro, where blockades have brought the province to a standstill. He has declared, “At any cost, this country will not be paralyzed.” Yet if protests intensify and his government weakens, it will become harder to counter China’s influence or secure reliable water supplies for the canal, which is already vulnerable to climate change and drought—factors that have occasionally reduced canal traffic and increased costs for U.S. exporters.

If Trump continues his public pressure campaign to extract concessions, he may ultimately undermine the Mulino government. Recently, the U.S. ambassador to Panama visited the canal and tweeted about efforts to secure free passage for U.S. government vessels. A more discreet and diplomatic approach would likely better serve U.S. interests.

Trump has learned that maximalist threats—such as "reclaiming the canal"—can be effective, particularly when directed at a small country like Panama rather than larger nations like Canada or Denmark. However, these demands deepen public distrust in the Panamanian government.

Should Trump’s goal be to regain full control of the canal and usher in a new era of U.S. territorial expansion, an unstable Panama would serve his interests. Any serious attempt to pressure Panama’s government through sanctions, tariffs, or other coercive measures risks igniting nationwide unrest. For Panama, the United States, and the world, this could represent the greatest danger of all.