The Panama Canal remains at the centre of geopolitical tension, as the United States increases pressure to counter China’s influence in the region, prompting sharp responses from both Beijing and Panama City.

During a visit to Panama on April 9, US Secretary of Defense Pete Hegseth declared that Washington “will not allow China to threaten the security or operations of the canal,” as quoted by AFP. Appearing to extend an olive branch to the small nation, he proposed strengthening bilateral security ties with Panama by engaging in joint exercises, new defence agreements, and rotating deployments of US military personnel.

Panama's government, however, pushed back immediately. “We cannot accept military bases or defence sites,” said Security Minister Frank Ábrego, echoing President José Raúl Mulino’s clear stance on national sovereignty and canal neutrality, a principle established in the 1977 Torrijos-Carter Treaties. The renewed agreement with the US is set to include cybersecurity cooperation and military training, but the government adamantly insists it will not involve foreign military installations. Nonetheless, Panama's main unions and civil society organisations have already called for protests, denouncing the deal as a violation of the Constitution and canal neutrality.

Simultaneously, fresh tensions have flared up over the operations of Panama Ports Company (PPC), a subsidiary of Hong Kong-based CK Hutchison Holdings, which runs terminals at both ends of the key waterway. A recent audit by Panama’s Comptroller General accused PPC of failing to pay $1.2bn in dues under its concession agreement. PPC strongly denied the charges, stating it has invested more than $1.69bn in line with the contract and that the audit ignores amendments signed in 1997 and 2000, as reported by Reuters.

Following US pressure last month, the conglomerate owned by Hong Kong tycoon Li Ka-shing agreed to sell 43 ports, including two in Panama, to asset manager BlackRock for $19bn. But the sale has hit a roadblock, as Beijing urged CK Hutchison to halt the deal, citing national security and competition concerns.

The audit’s release coincides with growing US scrutiny of Chinese-linked companies operating in strategic infrastructure across Latin America. “China did not build this canal. China does not operate this canal. And China will not weaponise this canal,” Hegseth said, as quoted by CNN. The statement reflects a broader US policy shift, increasingly framing Chinese commercial activity as a national security threat.

“Make no mistake, Beijing is investing and operating in this region for military advantage and unfair economic gain,” Hegseth added while speaking to the press.

China, in turn, lashed out at the remarks. “This is a malicious attack,” said a spokesperson for the Chinese Embassy in Panama, urging the US to stop its “blackmail and plundering” tactics. Both China and the US are among the largest users of the Panama Canal, but their competition over its control is intensifying.

While both nations pledge to respect Panama's sovereignty, official communications from Hegseth's visit raised eyebrows. The joint US-Panama statement released in English omitted the phrase “inalienable sovereignty,” which appeared in the Spanish version—a discrepancy that fueled suspicion about Washington’s intentions, La Estrella de Panamá reported.

Despite reaffirming cooperation, the agreement’s vague language on future US military presence in Panama has triggered concern. Additionally, denying claims by Secretary of State Marco Rubio that the US had secured a deal for the free passage of warships, the Panama Canal Authority (ACP) clarified in a statement that no toll exemptions were granted to US military ships, but confirmed that both parties would explore a compensation mechanism under existing treaties.

As the canal faces mounting pressure—from climate-driven water shortages to global trade shifts—its geopolitical weight is also rising. For Panama, maintaining neutrality is now more complex than ever.