The Panama Canal has once again become a focus of geopolitical friction, as the United States steps up diplomatic pressure on Panama over what it claims is growing Chinese influence around the critical waterway. This renewed interest comes ahead of US Defence Secretary Pete Hegseth’s visit to Panama this week, where he is expected to meet with President José Raúl Mulino and attend the 2025 Central American Security Conference.

According to the Pentagon, Hegseth will hold bilateral meetings with civilian and military leaders to reinforce regional partnerships and promote a "peaceful and secure Western Hemisphere," as stated by Pentagon spokesperson Sean Parnell. However, this visit is taking place under tense circumstances, with President Donald Trump having recently doubled down on his threats to "retake" the canal, citing national security concerns stemming from Chinese commercial activity near the route.

At the centre of this controversy is the Hong Kong-based conglomerate CK Hutchison, which has operated port facilities on both ends of the canal — Balboa and Cristobal — for years. In response to sustained US pressure, the company agreed to sell its ports division to a BlackRock-led consortium in a $22.8bn deal, as reported by the Financial Times. Yet while the transaction would bring the ports under effective US control, its finalisation remains uncertain due to ongoing scrutiny by Chinese regulators.

The Panamanian government, while denying any loss of sovereignty over the canal, has treaded cautiously to avoid confrontation with Washington. Foreign Minister Javier Martinez-Acha emphasised the importance of “respectful, transparent and mutually beneficial” relations with the US, reaffirming Panama’s commitment to its constitution and the Canal Neutrality Treaty. He also confirmed a recent call with US Deputy Secretary of State Christopher Landau, in which they discussed migration and Chinese influence, as reported by AFP.

Landau praised Panama’s efforts in curbing irregular migration through the treacherous Darién jungle, where crossings have reportedly dropped by 98 percent, as noted by the US State Department. The crackdown, which began last year under the watch of former president Joe Biden, is widely seen as a gesture aimed at easing Washington’s concerns, especially with US attention now shifting to the canal’s security and commercial governance.

The canal, which handles around 5 percent of global maritime trade, is of undeniable strategic importance. Built by the United States and inaugurated in 1914, it was officially handed over to Panama on December 31, 1999. Trump has repeatedly criticised this handover, calling it a mistake and suggesting that Chinese involvement constitutes a breach of the canal’s neutrality.

In response to mounting scrutiny, Panama’s comptroller initiated a forensic audit of CK Hutchison’s operations earlier this year. Lawmakers have raised concerns over alleged irregularities in the company’s port concessions, and, according to the FT, findings from the audit could influence whether regulatory action is taken.

Meanwhile, the US military has made its presence felt in the small nation. Joint exercises with Panamanian forces were held in recent weeks, focusing on the canal’s security and operational readiness. As reported by NBC News, the White House has even considered contingency plans to increase troop presence in Panama, with one option involving the use of force to take control of the waterway — a scenario that has not been officially confirmed by Washington.

The pressure campaign reflects broader US efforts to rein in Chinese influence in Latin America, especially in critical infrastructure. Senator Marco Rubio, a close Trump ally, made Panama his first foreign visit this year, underscoring the country’s growing significance in Washington’s foreign policy priorities. Following his trip, the country exited China's trademark Belt and Road initiative, triggering a response from Beijing, which decried the US' “Cold War mentality."

While Panama insists that the canal is fully controlled by the independent Panama Canal Authority, the optics of the BlackRock acquisition and heightened military cooperation suggest otherwise. The question now is whether Panama can maintain its diplomatic balance or if it will be forced into choosing sides in an intensifying US-China rivalry.