In the Panama City neighbourhood of El Chorrillo, a neglected monument to the hundreds of Panamanians who perished during the 1989 US invasion offers a chilling reminder of what can happen if the Central American country falls foul of Washington.
With US President Donald Trump this week threatening to “take back” the Panama Canal, residents who survived the battles 35 years ago are angry that they are once again at the whim of their country’s main ally.
“Trump should respect the Panamanian flag, just as we respect that of the United States,” said Isaias Blades, a street vendor who as a child sheltered from US military helicopters. “In 1989 we had to walk beneath gunfire, as tanks rolled around us . . . once again the US wants to dominate Latin America.”
The invasion overthrew the military dictatorship of General Manuel Noriega, who was captured, flown to the US and jailed on drug trafficking charges. Panama has been a democracy and staunch US ally ever since.
But the spectre of fresh US intervention in Panama has been revived by Trump, who has said that the country’s famous canal — which was completed in 1914 and controlled wholly or jointly by the US until its full handover to Panama in 1999 — should now be returned to Washington.
“We have been treated very badly from this foolish gift that should have never been made and Panama’s promise to us has been broken,” Trump said during his inaugural address on Monday, claiming that China “is operating” the canal. “And we didn’t give it to China, we gave it to Panama and we are taking it back!”
The Panama Canal, an 82km system of waterways and three-lane locks that connect the Caribbean to the Pacific, binds Panama to the global economy, with 5 per cent of world maritime trade, worth about $270bn, passing through it on as many as 13,000 individual crossings a year. More than 70 per cent of that traffic originates from, or is destined for, a US port.
China’s growing investment in Panama — including ports at either end of the canal operated by Hutchison Ports, an arm of Hong Kong-listed conglomerate CK Hutchison Holdings — has raised hackles in Washington.
After Panama switched recognition from Taiwan to China in 2017, Beijing built a big convention centre in the Central American nation and is constructing a fourth bridge across the canal. It is now Panama’s second-biggest investor, after the US.
Trump has complained about US ships being “ripped off” with high fees for transiting the canal, though a neutrality treaty signed as part of the canal handover accords originally negotiated by President Jimmy Carter in 1977 obliges Panama to treat all countries equally on tariffs, making it difficult to offer the US a special deal.
Ilya Espino de Marotta, the deputy administrator of the Panama Canal, said China has no influence on the waterway, and that any contracts awarded to Chinese companies were done so transparently.
“It’s run 100 per cent by Panamanians,” she said in an interview in her office overlooking the canal. “And we are neutral towards all countries”.
Panama’s government ordered an “exhaustive” audit of Hutchison’s operations on Monday, shortly after Trump’s inaugural address. The company first won its port concessions in Panama in 1997, but they were renewed in 2021 and now run to 2047.
Trump’s concern with the Panama Canal dates back to his first administration. When he met then-Panamanian president Juan Carlos Varela at the White House in 2017, his public comments were complimentary.
But in a private conversation Trump raised the issue of canal tariffs and ownership and expressed his dissatisfaction with the arrangement, according to people familiar with the meeting.
Few believe that the president is serious about a military invasion of Panama to seize back the canal. But if he were to order in troops, the country, with a population of just 4.5mn, has no army and little experience of fighting wars.
“We are worried,” said a senior Panamanian official, speaking off the record. “We think there could be some kind of retaliation if Trump doesn’t get what he wants. So let’s see what might be on the table for negotiation.”
Under the terms of the handover treaty, US military vessels have priority to cross the canal, though, like all other ships, they have to pay tolls.
An invasion would also test the US. The military’s Southern Command, covering Latin America and the Caribbean, moved from Panama to Miami in 1997 and Washington closed its extensive air force, naval and army facilities in the Central American nation in 1999. The air base has since been repurposed into a business park, while Washington’s only nearby military facility is an anti-drug base in Honduras.
But the biggest damage would be diplomatic and political. Panama has remained one of Washington’s closest allies in the region and has elected right-of-centre, pro-business governments, such as its current leader, José Raúl Mulino.
Panama uses the US dollar as its currency, is popular with US companies as a logistics base and is sought after by retired Americans. Baseball is preferred over football, and US-style malls line the multilane highways around the capital.
A Panamanian businessman with interests in the US said that while Chinese investment had grown, most businesses preferred to make deals with American companies. “It’s night and day between the Americans and the Chinese — culturally and in business,” he said.
Gen. Laura Richardson, who stepped down as commander of SouthCom last November, has been outspoken about the growing threat she says is posed by Chinese investment in Latin America. “Strategic competition matters,” Richardson told the FT last year. “We have to be investing and we have to be competing on critical infrastructure projects for . . . like-minded democracies”.
The US State Department confirmed on Thursday that Secretary of State Marco Rubio will travel to Panama next week.
Ryan Berg, a Latin America expert at the CSIS think-tank in Washington, said he “keeps going back and forth” over whether Trump’s military threat was serious or whether “he would say ‘yes’ if the US were to get contracts to operate the ports” currently run by Hutchison.
“If it’s about Chinese influence, then having US companies operating the ports would solve a lot of the issues,” Berg said, pointing to US concerns about Beijing using the Hutchison concessions for spying on shipping or as a way to block the canal in the event of hostilities occurring over, say, Taiwan.
Jorge Eduardo Ritter, who served as Panama’s foreign minister and its first minister of the canal, said Beijing was filling a space that Washington had neglected. “After the cold war, the US stopped paying attention to what it considers its own backyard,” Ritter told the FT. “And that’s when China came in.”
Data visualisation by Alan Smith and cartography by Steven Bernard
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