A growing U.S.-People’s Republic of China (PRC) gray zone skirmish in Panama could have real national security implications for the United States. In the next few months, there are significant port and canal decisions that will be a bellwether gauging if China can continue to outmaneuver the United States in Latin America through its use of soft power, incentive-based bargaining, and the argument of a declining America. At stake is strategic control of the Panama Canal.
The port decision focuses on Hutchison Whampoa and its 25-year port concession set to expire in January 2022. Hutchison is a Chinese multinational, Fortune 500 conglomerate with a ports and related services division operating in 26 countries. They also manage five of the 10 busiest container ports in the world. While China does not operate the canal, Hutchison manages the ports of Balboa and Cristobal on both sides of the isthmus and the concession for Margarita Island, Panama’s largest Atlantic port. Hutchison is rumored to have deep ties spanning decades with Beijing.
The canal decision centers on a 50-year concession for a new water management system. This system will address the increasingly constrained water levels caused by drought and overuse that have worried canal officials for years. Multiple PRC companies have expressed interest in this project. With these two contracts, China would have an enormous lever of power to affect transshipment cargo operations. Beijing could use these companies as political agents to disrupt canal operations during a hot gray zone confrontation, exerting strategic control over this critical maritime chokepoint.
Panama has always been a small country with an oversized profile because of the canal and its long history with the United States. The canal bridges the Atlantic and Pacific oceans. It has been the force behind Panama’s emergence as a maritime and air logistics hub with a substantial global banking and services center. It is still relevant after more than a century in operation and factors in around 6% of international trade. The United States is the top customer, with 68% of canal traffic beginning or ending at a U.S. port, while China is 16%. The U.S., via treaty with Panama, guarantees permanent neutrality of the canal, with fair access for all nations and nondiscriminatory tolls. With that in mind, the PRC maneuvers carefully, but it is emboldened.
Panama robustly turned toward China during the presidency of Juan Carlos Varela (2014-2019). Panama broke diplomatic relations with Taiwan in 2017. It fully embraced the Belt and Road Initiative (BRI), the PRC’s global infrastructure development strategy that invests in countries to expand Chinese economic and political influence. In Panama, many infrastructure projects were proposed during the Varela years, including a 4th bridge across the canal, a high-speed rail system to the interior, and a cruise terminal. From the outset, questions were raised about contract transparency and the necessity of some projects. Corrupt payments to Varela officials once only whispered allegations are now openly accepted as matter-of-fact.
The Chinese BRI template for Latin America is well established: they get major infrastructure projects approved with inflated costs through a process designed to be opaque and enable fraud and corruption. Lax enforcement of key provisions is a program hallmark as labor stipulations, costs and timelines are rarely upheld. By the time the actual costs and beneficiaries surface, the government that signed the deal is out of office. The new government finds the projects do not generate the promised benefits, and the country is more deeply in debt.
Panama, like many nations, has a history of high-level corruption. It seems each administration seeks new and innovative ways to monetize their time in office. With Laurentino Cortizo and the return of the Democratic Revolutionary Party (PRD) in 2019 after a decade in political exile, relations with China have cooled. Many projects envisioned have been canceled or restructured. This has been primarily attributed to the impact of Covid-19 on the Panamanian economy. Still, there is noise members of the Cortizo administration have been attempting to renegotiate the terms of some contracts in their favor. The PRD is the party of Omar and Martin Torrijos, of Balbina Herrera and Ernesto Perez Balladares. They are the party of the canal treaty, and the government deposed during the U.S. 1989 invasion. They know how to find an advantage, but even some ‘old’ PRD members find the ‘new’ PRD tactics unseemly.
Many Panamanian elites are U.S.-educated, and the cultural ties between the countries are strong. Still, there is concern about the Biden administration and whether the U.S. can keep its historic leadership role. The U.S. open borders policy has resulted in thousands of migrants pushing through Panama. Many Panamanians are tired of the daily news coverage of migrants begging for food and water, the increase in petty crimes and the draining of already scarce public resources to support their crossing. The Afghan debacle, the cultural chaos, and the overall perception of weak U.S. leadership contrast negatively with an aggressive China open for business. Panama also knows there are other countries courting BRI projects, and Panama has few other realistic options for financing their infrastructure projects.
With the disruption of global supply chains from COVID-19, increased shipping costs, and the PRC’s formidable drive to invest in Panamanian infrastructure, the significance of these pending decisions has only increased for the United States.
A broad-based engagement strategy that advances both U.S. and Panamanian interests are needed, or the Chinese will look like the better option. None of this is news. In recent years, many frank assessments have been published highlighting Chinese maneuvering in Panama, but the Biden administration continues to project indifference, and their policies lack relevancy.
For example, some Panamanian officials quietly expressed doubts about the sincerity of a recent high-level U.S. delegation. They described meetings as full of tired rhetoric and typical promises, which is not a good sign. So time is short, and decisions are pending. Real diplomacy is needed to reassure a traditional partner, or we could wake up one morning wondering how strategic control of the Panama Canal was lost to the People’s Republic of China.
• Ron MacCammon taught International Relations and the Government and Politics of Latin America at the United States Military Academy at West Point and was the U.S. Defense Attaché in Panama 2002-2005.