Freedom in our hemisphere is not up for negotiation.U.S. State Department, joint statement condemning China released with five Latin American countries
The United States on the 28th of last month (local time) released a joint statement with five Latin American countries squarely targeting China. What they vowed to defend is the narrow man-made waterway connecting the Atlantic and Pacific, the Panama Canal.
The U.S. State Department that day issued a joint statement with Bolivia, Costa Rica, Guyana, Paraguay, and Trinidad and Tobago, saying China is pressuring Panama-flagged vessels "to politicize maritime trade and infringe on the sovereignty of Western Hemisphere countries." The six countries, including the United States, added, "Panama is a pillar of our maritime trade system and must be free from undue external pressure."
As the global crude supply chain reels from Iran's blockade of the Strait of Hormuz, the once quiet trade lane of the Panama Canal has suddenly emerged as a hot powder keg in the U.S.-China power struggle.
The United States declared it will no longer stand by as Chinese influence looms over the Panama Canal, a choke point critical to its security and logistics. The move carries added weight because it came right after the world confirmed that a single narrow seaway, as seen after the Hormuz blockade, can shake both energy power and inflation.
The main arena where the United States and China are vying for control is not the entire canal but two ports at its entrances. Those are the Balboa terminal on the Pacific side and the Cristóbal terminal on the Atlantic side of the Panama Canal.
The two ports handle nearly 10 million containers a year. That rivals the annual container throughput (9 million) of the Port of Los Angeles (LA), the key gateway on the U.S. West Coast and the largest port in North America. In other words, the volume handled by the two terminals on either side of the Panama Canal is comparable to the total annual cargo volume processed by the largest port in the United States. The two ports had been operated since 1997 by CK Hutchison, owned by the family of Hong Kong's richest tycoon Li Ka-shing, through its subsidiary Panama Ports Company (PPC).
After nearly 30 years without incident, the port operating rights became embroiled last year in major corruption allegations during the renewal process. The Panama Board of Audit and Inspection filed a constitutional complaint last July, saying PPC, the operator at the time, extended its 25-year concession in 2021 without an open bid. According to the Board of Audit and Inspection, despite the canal's massive cargo volume, excessive duty-free benefits and unpaid contributions combined to saddle the Panamanian government with cumulative losses amounting to $1.2 billion (about 1.8 trillion won). On Jan. 30 this year, the Supreme Court of Panama ruled that both Law No. 5 of 1997 and the 2021 renewal contract were unconstitutional. The court said, "The contract granted PPC excessive favors and harmed the national interest."
On the surface, it appears to be a measure by Panama's judicial authorities to root out long-standing special favors. But experts said that behind it lies deep involvement by the United States' security strategy to push out Chinese capital.
The Panama Canal provides overwhelming strategic value to the United States. Though it is only about 80 kilometers long, 5% of global maritime trade passes through this chokepoint. In particular, more than 70% of the cargo transiting either departs from the United States or is bound for the United States. It is a key corridor handling more than 40% of U.S. container traffic. Citing experts, Bloomberg said, "The U.S. East Coast consumer economy, naval ship movements, and trade between Asia and the United States are all tied to the canal's two entrances."
U.S. President Donald Trump said in his inaugural address last January that China is "operating" the Panama Canal and consistently said he would "take back control." U.S. Minister of State Marco Rubio also warned repeatedly during his confirmation hearing that with a Chinese corporations running the ports, "in a contingency, China could deliberately choke off canal logistics and use it as a weapon to squeeze the United States." On the 28th, Minister Rubio led a joint statement with five Latin American countries condemning China's economic pressure, marking the start of full-fledged involvement in the Panama issue.
The two ports at the center of controversy have now left the hands of Hong Kong-based CK Hutchison and are being operated by the world's No. 1 and No. 2 shipping corporations under an 18-month interim concession entrusted by the Panamanian government. A subsidiary of Denmark's Maersk is running the Balboa terminal on the Pacific side, and an affiliate of Switzerland's MSC is handling operations at the Cristóbal terminal on the Atlantic side. Both tollgates of the canal have shifted from China's sphere of influence to the Western camp. CK Hutchison pushed back, calling it "a decision without legal basis," and in March initiated international arbitration worth $2 billion (about 3 trillion won).
China did not sit idle. The retaliation began at its own ports. Chinese port authorities strengthened inspections targeting "all vessels flying the Panamanian flag," and began detaining some ships.
Panama is the country with the most ships holding a "flag of convenience" in the world. In the shipping industry, this is called a flag of convenience. Put simply, think of it as a tax haven for ships. Because logistics are its lifeline, Panama has low taxes related to ships, and its labor laws and safety regulations are lax. For this reason, regardless of whether the real owner of the ship is Korean, Japanese, or American, a practice has taken hold in the shipping industry of not registering ships in their home countries but declaring Panamanian nationality for their vessels.
In other words, while many container ships and tankers outwardly fly the Panamanian flag, their real owners are global shipping companies. Even if Chinese port authorities only slightly raise the inspection frequency for Panama-flagged vessels, global shipping companies, cargo owners, and insurers worldwide, including the Panamanian government, simultaneously shoulder massive delay expense. Without mounting a military attack on the canal, it functions as a means of pressure that turns the national brand "Panama" into a risky asset in the shipping industry.
According to the U.S. Federal Maritime Commission (FMC) and data from the Asia-Pacific Port State Control Memorandum, of the 123 ships detained at Chinese ports in March, 91—74%—were Panama-flagged. Of 179 ships detained across the entire Asia-Pacific region, more than half were Panama-flagged vessels seized at a single Chinese port during March.
FMC Chairperson Laura Diebel said the Chinese side carried out the tougher ship inspections "under unofficial instructions," interpreting it as an attempt "to punish Panama after the transfer of Hutchison's port assets." The FMC warned that because Panama-flagged vessels account for a meaningful share of U.S. container trade, continued Chinese inspections could have significant commercial and strategic impacts on U.S. shipping.
Lin Jian, Spokesperson for the Ministry of Foreign Affairs of China, countered at a regular briefing on the 29th that the U.S.-led joint statement was "groundless lies that distort the facts." He added that "ship inspections are legitimate actions in accordance with regulations," and criticized the United States for "politicizing and securitizing port issues and slandering other countries."
Experts increasingly assessed that from Hormuz to the Red Sea and now to Panama, shipping is turning into an industry weaponized for leverage. David Smith, an associate professor at the United States Studies Centre at the University of Sydney, said in an interview with Al Jazeera, "After the blockade of the Strait of Hormuz, countries realized the vulnerability of maritime transport networks," adding, "It should come as no surprise if ships and shipping become hostages of international politics." Global supply chain management platform Wakeo noted that "geopolitical tensions are determining the stability and expense of the Panama Canal," and said it "will emerge as a key variable in transporting cargo bound for the United States."