The Panama Canal and the Nicaragua Route: A Shift in the Axis of Confrontation?

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Panamanians have expressed their irritation and concern after Donald Trump reiterated his intention to return the Panama Canal to U.S. ownership during his inauguration. According to the new occupant of the White House, ships from his country are being “treated unfairly,” while China, Washington’s commercial competitor, allegedly “controls this vital maritime artery.”

Panamanian President José Raúl Mulino responded to Trump once again, stating that the canal will remain under the control of the local administration and that there is no foreign interference, whether from China or any other country. U.S. Secretary of State Marco Rubio suggested that Panama should abandon the idea of charging American vessels for passage through the canal, emphasizing that the United States must protect this crucial transportation route. In short, the pressure on Mulino’s shoulders is not easing, and it is possible that Trump may resort to extreme measures.

Meanwhile, the Panama Canal faces a potential future competitor: the Nicaragua Canal.

In his first speech of his second presidential term, President Donald Trump criticized the decades-old agreement under which the United States transferred the Panama Canal to the country after which it is named. Weeks before his inauguration, Trump threatened to restore U.S. control over the Panama Canal, including through potential military action. Panamanian President José Raúl Mulino criticized Trump’s remarks, asserting that “every square meter” of the Panama Canal will remain under Panamanian control.

José Raúl Mulino
*Photo by Matias Delacroix / Associated Press*

Historically, the United States played a key role in the construction and management of the canal, which connects the Atlantic and Pacific Oceans. After a failed attempt by the French to build it, the U.S. secured the rights to complete the project. The canal was finished in 1914 and remained under U.S. control until 1977, when then-President Jimmy Carter signed a treaty to gradually transfer it to Panama—a move Trump has called “foolish.” Since 1999, the Panama Canal Authority has held exclusive control over the waterway’s operations. The treaties signed by both the U.S. and Panama stipulated that the canal would remain permanently neutral, but the U.S. retained the right to defend it against any threat to its neutrality, including through military force under the terms of the agreement.

But how did China suddenly enter the “Panama story”? There is no public evidence that the Chinese government controls the canal or its military operations. However, Chinese companies have a significant presence there. From October 2023 to September 2024, China accounted for 21.4% of the cargo volume transiting through the Panama Canal, making it the second-largest user of the artery after the United States. In recent years, China has also invested heavily in ports and terminals near the canal. Two of the five ports adjacent to the canal, Balboa and Cristóbal, located on the Pacific and Atlantic sides respectively, have been managed since 1997 by a subsidiary of Hutchison Port Holdings, a Hong Kong-based conglomerate founded by businessman Li Ka-shing.

The company operates ports in 24 countries, including the United Kingdom. Although it is not state-owned, there have been concerns in Washington about the extent of Beijing’s potential influence over the company. For example, the company could potentially collect strategically useful information about ships passing through these ports. Given the growing geopolitical and economic tensions between the U.S. and China, such cargo information could be highly valuable in the event of an escalation aimed at disrupting supply chains.

Chinese companies, both private and state-owned, have also strengthened their presence in Panama through billions of dollars in investments, including a cruise terminal and a bridge to be built over the canal. This “package of Chinese activities” may have prompted Trump to claim that the canal “belongs” to China, but operating these ports does not equate to ownership. Beijing has repeatedly stated that China’s ties with Latin America are characterized by “equality, mutual benefit, innovation, openness, and benefits for the people.” China has spent years working to increase its influence in Panama and expand its presence on a continent traditionally considered the “backyard” of the United States.

In 2017, Panama severed diplomatic ties with Taiwan and established formal relations with China—a major victory for Chinese diplomacy. Months later, Panama became the first Latin American country to join China’s trillion-dollar Belt and Road Initiative. The Dominican Republic, El Salvador, Nicaragua, and Honduras followed suit, also cutting ties with Taipei in favor of Beijing. China has gradually expanded its “soft power” by opening its first Confucius Institute in the country and providing grants for railway construction. Chinese companies have also sponsored “media training” for Panamanian journalists.

But what if Trump, like a bulldozer, literally shatters the old geopolitical order and drags global politics back into a desperate medieval era with his bold, candid, and reckless statements, suddenly decides to reclaim the Panama Canal by force? Or, at the very least, through unprecedented pressure, manages to nullify Beijing’s efforts, creating problems for ships passing through the waterway? Nicaraguan President Daniel Ortega has presented China with a new route—through his country. After 11 years, Ortega has revived a project that could become an alternative for global logistics. The new Nicaragua Canal project proposes a 445-kilometer route connecting the Atlantic deep-water port of Bluefields in the South Caribbean Autonomous Region with the Pacific port of Corinto in the Chinandega Department.

The canal, as envisioned by Ortega’s team, would be 290 to 540 meters wide and up to 27 meters deep. Among the advantages Nicaragua touts over the 80-kilometer Panama Canal are greater efficiency in international maritime transport, reduced travel time and costs, and the promotion of international trade. Undoubtedly, the president is addressing infrastructure development, strengthening the economy, and creating new jobs. Nicaragua finds itself in a highly advantageous position if it can successfully play the canal card. For Ortega, this is an opportunity to “punch the nose” of a long-time adversary, the United States, while simultaneously aligning with Washington’s main rival, China. By leveraging Beijing’s investments, Ortega could bolster his own economy, significantly reduce domestic tensions, and strengthen his grip on power.