Panama's Great Escape: Decoding the BRI Exit and its US Rebound

Panama, a nation of just 4.5 million, commands an outsized global presence due to its unique geography and the eponymous Canal, a vital artery for global trade. This narrow strip of land, connecting the Atlantic and Pacific Oceans, facilitates approximately 5% of global trade annually, making it an indispensable maritime pathway and a perennial focal point for international powers. For decades, its strategic significance has been inextricably woven into the shifting tides of global geopolitics.

In 2017, Panama undertook a significant diplomatic reorientation, severing its long-standing ties with Taiwan in favor of establishing relations with Beijing. This move was swiftly followed by Panama becoming the first Latin American country to formally embrace China's ambitious Belt and Road Initiative (BRI). Under the administration of former President Juan Carlos Varela, this alignment was envisioned as a pathway to unlock substantial Chinese investment and bolster trade ties with the burgeoning Asian superpower. Indeed, China proposed or undertook various infrastructure projects, including bridges, a rail line, commercial ports, and a cruise ship terminal. The Amador Cruise Terminal, for instance, stands as a tangible outcome, completed and inaugurated in April 2024. This modern cruise homeport on the Pacific side, strategically positioned near the Canal entrance, has been operational since December 2023 and has already welcomed over 100 cruise ships, showcasing some concrete results of Chinese engagement.

Then, with startling abruptness, the landscape shifted. On February 3, 2025, Panamanian President José Raúl Mulino announced Panama's decision not to renew its participation in the BRI. This landmark declaration instantly repositioned Panama as the first Latin American nation to formally withdraw from China's sprawling global infrastructure initiative. The announcement sent immediate ripples across the international stage, drawing starkly contrasting reactions from Washington and Beijing.

Washington’s response was one of unreserved triumph. U.S. Secretary of State Marco Rubio lauded the decision as a "tremendous victory," not only for the United States but also for the Panamanian people, framing it as an escape from the "CCP's debt trap diplomacy" and a crucial step towards ensuring a "free Panama Canal” U.S. Congressman Michael McCaul echoed this sentiment, characterizing China's expanding footprint in the Western Hemisphere as a "clear and present danger" to U.S. interests. The enthusiastic and celebratory language emanating from U.S. officials, describing the move as a "victory" and a "course-correction," immediately signaled the profound geopolitical implications of Panama's choice. Such strong, immediate, and contrasting reactions from major global powers are typically reserved for events with significant strategic weight, indicating that Panama's decision was not merely a diplomatic formality but a seismic shift that directly impacts the ongoing U.S.-China strategic competition for influence in the Western Hemisphere.

Beijing, predictably, expressed deep regret and dissatisfaction. China's Foreign Ministry spokesperson accused the U.S. of "coercive pressure tactics" and of "smearing and undermining" BRI cooperation, asserting that such actions "will win no support and are doomed to fail". The Chinese government underscored its displeasure by summoning Panama's ambassador to Beijing to urge a reconsideration of the decision. The Chinese government's strong condemnation and immediate diplomatic protest further highlighted the competitive nature of their engagement, framing Panama's choice as a direct challenge to Beijing's regional standing. This intense diplomatic fallout transformed Panama's localized decision into a global headline, confirming its status as a key battleground in the broader U.S.-China rivalry.

A Delicate Dance: Sovereignty, Debt, and the American Embrace

Panama's motivations for this abrupt departure from the Belt and Road Initiative are multifaceted, extending beyond the simple narrative of external pressure. While the U.S. has vociferously championed the "debt trap diplomacy" argument, alleging that China ensnares vulnerable nations with excessive loans leading to the relinquishment of strategic assets, Panama's internal perspective offers a more nuanced view. Secretary Rubio explicitly stated that Panamanians were "escaping the CCP's debt trap diplomacy". However, many Panamanians and business leaders who applauded the decision focused on the perceived lack of tangible benefits from BRI projects, describing the country's adherence to the initiative as "pointless and stale" and stating it "had not translated into any major wins".\

The actual scale of Chinese investment in Panama, at $1.4 billion in 2023, was relatively modest, particularly when compared to the $4.5 billion invested by the United States in the same year. This significant disparity in investment volumes suggests that for many in Panama, the "politics and headache of belonging to the BRI were not worth it," given the minimal perceived returns. This economic calculus suggests a pragmatic approach rather than a desperate escape from a crippling debt trap. If Panama were truly caught in a debt trap, the primary motivation for withdrawal would be to alleviate an unsustainable debt burden. Instead, the emphasis from Panamanian sources on the lack of benefits and minimal investment indicates that the BRI was neither a significant economic boon nor a crippling burden that created a "trap." This discrepancy suggests that the "debt trap" narrative, while politically potent for the U.S. in its competition with China, might not fully capture Panama's internal economic rationale. Panama's decision appears to be a calculated move to align with a partner, the U.S., that already provides substantially more investment and promises further engagement, filling a perceived void left by the underperforming BRI. The "debt trap" serves more as a convenient geopolitical justification for the U.S.

Beyond purely economic considerations, some Panamanian leaders voiced concerns that growing Chinese intervention could, in the future, diminish their nation's territorial sovereignty. This sentiment resonates with broader criticisms of BRI projects that have sparked concerns about sovereignty in other participating countries.

The U.S. role in this pivot was undeniably central. Washington actively pursued a strategy to pressure Panama to weaken its ties to China, a campaign that intensified significantly under the Trump administration. Secretary Rubio's visit to Panama City on February 3, 2025, immediately preceded President Mulino's announcement, strongly suggesting a direct causal link. During his visit, Rubio conveyed President Donald Trump's concerns about China allegedly controlling the Panama Canal, warning that China's presence was a "threat" and a "violation" of the U.S.-Panama treaty concerning the Canal's neutrality. He reportedly stated that the U.S. would impose "necessary measures" if Panama did not reduce its involvement with China, highlighting the coercive element of the U.S. approach.

In exchange for this strategic pivot, the U.S. offered promises of a "reinvigorated strategic relationship" and "deeper U.S. investment" in Panama. President Mulino, in turn, expressed keen interest in increasing U.S. investment and infrastructure projects, as well as cooperating on U.S. immigration policy. Opportunities for U.S. companies were explicitly highlighted in critical sectors, including supply chains, critical mineral extraction, and Canal-related activities, with U.S. financing bodies such as the International Development Finance Corporation (DFC) and the Export-Import Bank (EXIM) positioned to provide assistance.

While the timing of Panama's BRI exit strongly suggests U.S. influence, President Mulino publicly stated that the decision was made prior to Rubio's visit. This narrative, whether entirely accurate or a strategic framing, suggests a deliberate effort by the Panamanian government to portray the withdrawal as an independent act of sovereignty rather than a direct capitulation to external pressure. Panama's history is deeply intertwined with U.S. intervention, from its independence in 1903 to the long period of U.S. control over the Canal Zone, which historically caused significant tension over Panamanian sovereignty. This deep-seated national sensitivity means any perceived foreign influence, whether from China or the U.S., is scrutinized domestically. Adding another layer of complexity, the Panamanian government publicly pushed back against a U.S. claim of free passage for its government vessels through the Canal, calling it "intolerable" and based on "lies and falsehoods". This public rejection of a U.S. assertion, even as it pivots towards Washington, illustrates Panama's ongoing assertion of its sovereign rights and its attempt to maintain a degree of independence in its foreign policy.

The economic calculus for Panama is indeed complex, with historical ties and new promises weighing heavily on it. The "debt trap" narrative, while a prominent U.S. talking point, appears to be less of a direct economic driver for Panama's withdrawal and more of a geopolitical framing. Panama's decision seems to be driven more by a pragmatic assessment of the BRI's limited tangible benefits and a preference for deeper, perhaps more reliable, economic ties with the United States, which already significantly out-invests China. The comparative investment figures below illustrate this point.

Table 1: Comparative Foreign Investment in Panama (2023 and Key Projects)

The Canal's Crossroads: Geopolitics, Commerce, and Contested Control

At the heart of Panama's global significance lies the Canal, an engineering marvel that remains a critical waterway connecting the Atlantic and Pacific Oceans. Its enduring strategic importance to global trade and U.S. interests cannot be overstated, as it facilitates approximately 5% of global trade annually and is vital for U.S. freight transportation. The neutrality and uninterrupted accessibility of the Canal are paramount to international commerce and U.S. strategic interests. Under the 1977 treaty, the U.S. retains the right to intervene if the Canal's neutrality is threatened by internal conflict or foreign power.

Concerns about Chinese companies' operations in key Panamanian ports have long simmered. Chinese commercial access to the Panama Canal region dates back to 1997, when a Hong Kong-based firm, Hutchinson Ports, signed a contract to operate two critical ports, Balboa and Cristobal, at either end of the Canal. This long-term contract was renewed in 2021 and is set to expire in 2047. U.S. officials, including former President Trump and Secretary Rubio, have consistently raised concerns about Hutchinson Ports' operations, alleging the potential for "Chinese Communist Party's malign influence" and questioning the Canal's neutrality. Rubio specifically claimed that China's presence violated the neutrality clause of the Panama Canal Treaties and warned of China's potential to disrupt trade routes in the event of a geopolitical conflict. Panamanian and Chinese officials, along with most experts on Canal operations, dispute the accusation that China controls the Canal. China insists it is committed to the Canal's "permanent neutrality" and has "never engaged in the management and operation of the Canal".

Adding another layer of complexity to the Canal's future, legal challenges to existing port contracts are actively underway, holding the potential to reshape its management. On February 3, 2025, the very same day as the BRI exit announcement, two attorneys filed a lawsuit against the Hutchinson Ports PCC contract. This lawsuit alleges that the contract violates a clause in Panama's constitution that prioritizes the public good over private interests, specifically citing provisions that cede Panamanian land to Hutchinson and provide substantial tax benefits. If successful, this lawsuit could allow Panama to terminate the contract with Hutchinson Ports before its 2047 expiration, potentially leading to a new manager for the strategically vital Balboa and Cristobal ports. Such an outcome would significantly alleviate U.S. concerns about the Canal's neutrality. This is not an isolated incident. The concession granted to China-based Landbridge Group to build the Panama Colon Container Port (PCCP) was already revoked by the Panama Maritime Authority in June 2021, years before the formal BRI exit. This revocation was due to "strategic concerns" and violations of investment and local labor hiring requirements. The PCCP project had faced a lawsuit halting construction since 2018.

The ongoing legal challenge against Hutchinson Ports, coupled with the prior revocation of the Landbridge Group's PCCP concession, reveals that Panama is not merely reacting to external pressure but is actively leveraging its own legal and regulatory frameworks to assert control over critical infrastructure and address long-standing concerns about foreign influence. This demonstrates a strategic internal agency that complements its external diplomatic pivot. The U.S. is certainly pressuring Panama regarding Chinese influence over Canal ports, framing it as a threat to neutrality. However, the lawsuit filed in Panama against the Hutchinson contract on constitutional grounds, specifically citing violations of public interest and land cessions, is an internal legal mechanism. Similarly, years prior, Panama itself, through its Maritime Authority, revoked the Landbridge Group's PCCP concession due to "strategic concerns" and violations. These actions are not simply external demands being met. Panama possesses robust internal legal and regulatory frameworks that are being activated or have already been used to address concerns about foreign control over its strategic assets. The lawsuit, in particular, is an internal legal challenge, initiated by attorneys, not a direct government decree under immediate U.S. pressure. This indicates that Panama's actions are more than a simple "changing of hands" of foreign influence. There is a deeper, internal process of reasserting national control and sovereignty over critical infrastructure, which aligns with, but is not solely dictated by, U.S. strategic interests. Panama is utilizing its legal tools to achieve outcomes that benefit its perceived national interests and address concerns about transparency and the public good, rather than passively accepting foreign dictates. This demonstrates a sophisticated internal agency, where Panama is leveraging its own legal and regulatory systems to manage external influences and assert sovereignty, making the pivot a more complex act of self-determination than a mere shift in allegiance.

Panama also has its ambitious plans for the Canal's future development and is actively seeking diverse international partnerships. The Panama Canal Authority (ACP) has an ambitious 10-year investment plan for 2025-2035, totaling approximately $8.5 billion. This Master Plan places a strong emphasis on water management, sustainability, and key infrastructure projects to ensure the Canal's long-term viability and competitiveness. Key projects within this plan include the Indio River reservoir, estimated at $1.6 billion, which is designed to increase lockages and replenish Gatún Lake, thereby addressing critical water shortages. Another significant undertaking is an 80-kilometer liquefied natural gas (LNG) pipeline across the isthmus, valued at over $2 billion, aimed at diversifying revenue and alleviating Canal congestion by allowing LNG vessels to bypass the waterway. The plan also includes developing a multimodal logistics hub with new port terminals, highways, and railways. Panama is actively seeking diverse international partners for these projects, with Spanish companies already participating in the acquisition of new tugboats. Notably, a U.S. company had also explored the feasibility of the gas pipeline project as early as 2021, indicating potential alignment with Panama's self-defined development goals.

Table 2: Panama Canal Authority (ACP) 2025-2035 Master Plan Key Projects