This aerial photo shows the Taiwanese cargo ship “Yang Ming” departing from the Panama Canal on the Pacific side of Panama City on October 6, 2025.
Martin Burnetti | Martin Burnetti AFP | Getty Images
A smoldering dispute over two container ports at either end of the Panama Canal threatens to become a geopolitical flashpoint between the world’s two largest economies, the United States and China.
This follows a controversial ruling by the Panama Supreme Court revoking the license of a subsidiary of Hong Kong-based CK Hutchison, which operates two major terminals on the waterway, through which about 40% of all U.S. container traffic passes each year.
The ruling is seen as a major victory for the United States, given that the White House has made curbing China’s influence on global trade arteries one of its top priorities.
China has been looking to up the ante in recent days. In its strongest rebuke to date, the Chinese government warned on Wednesday that unless the Central American country changed course, “it is inevitable that it will pay a heavy political and economic price.”
China’s State Council Hong Kong and Macao Affairs Office condemned the court’s decision, calling it “logically flawed” and “utterly absurd.”
In response, Panamanian President José Raul Mulino on Wednesday dismissed China’s threat, saying he “categorically rejected” the Hong Kong and Macau Secretariat’s statement.
Mulino said on social media that Panama is a “nation of laws” that respects the decisions of the Supreme Court, noting that judicial decisions are independent of the central government.
Meanwhile, CK Hutchison announced on Wednesday that he had submitted Panama to international arbitration, adding that he “strongly disagrees with the[court’s]decision.”
Analysts expect the fallout from the ruling to last quite a while.
Scott Kennedy, a senior adviser at the Center for Strategic and International Studies, said questions remain about the security risks posed by CK’s port control and whether any mitigation measures are in place, and that it is likely to become “a simple contest for supremacy in Latin America.”
“The most likely scenario is a protracted legal battle in multiple jurisdictions and significant political and economic pressure from both China and the United States,” Kennedy added.
Relations between the two countries soured last year as President Donald Trump imposed steep tariffs on Chinese exports and Beijing tightened its grip on rare earth exports. Geopolitical tensions, including Beijing’s stance on Taiwan, Russia’s support for the war in Ukraine, and U.S. military actions in Venezuela and Iran, are also weighing on the relationship.
China to suspend Panama Agreement?
Last March, CK Hutchison negotiated a $23 billion deal with a BlackRock-led consortium to sell its non-Chinese port subsidiaries. The deal subsequently drew criticism from Beijing, which called it a “humiliation” to U.S. pressure.
Chinese authorities are reportedly seeking to restructure the deal, requesting that the deal be submitted to China’s merger review process and offering state-owned shipping group Cosco to join a takeover consortium.
In a sign of further escalation, China has directed state-owned companies to halt talks over new projects in Panama and asked shipping companies to consider rerouting cargo through other ports, Bloomberg reported on Thursday.
According to Bloomberg, Chinese customs authorities will step up inspections of goods imported from Panama, including bananas and coffee.
However, China Macro Group analyst Jack Li said it remained unlikely that Beijing would respond in any way to encourage Panama to change course, given that President Trump views the canal as a strategic chokepoint.
Li said China’s response was likely to be carefully calibrated and primarily symbolic, aimed at demonstrating disapproval rather than forcing a policy shift, adding that the Panama incident exposed China’s vulnerability in defending its economic interests in the region when challenged by US pressure.
“Chokehold” in the maritime industry
China is stepping up investment in strategic infrastructure across Latin America, including a major deep-water port in Peru. Chancay Port, operated and majority-owned by state-owned company Cosco, is expected to cut transit times by about half.
Analysts at the Foundation for Defense of Democracies, a Washington, D.C.-based think tank, warned that Beijing appears to be “putting the maritime industry in a bind.”
FDD’s Elaine K. Dezensky and Susan So said in an article published Monday that China controls more than 100 overseas ports on every continent except Antarctica and manufactures more than 95 percent of shipping containers and more than 70 percent of shore cranes.
Almost two-thirds of global shipbuilding orders will go to Chinese shipyards by 2025, giving China a monopoly on global shipbuilding orders, according to an industry report citing data from maritime research firm Clarksons.
A cargo ship passes through the Panama Canal Cocoli Locks on February 21, 2025 in Panama City.
Martin Burnetti | Martin Burnetti AFP | Getty Images
Meanwhile, about 40% of U.S. container shipping transits through the Panama Canal each year, collectively moving about $270 billion in cargo annually.
Therefore, Beijing’s increasing control over the oceans could put the United States and its allies at risk of the same dependence they face for critical minerals and rare earths, the FDD said.
“We need to support multipolarity”
United Nations Secretary-General António Guterres recently condemned the power struggle between the United States and China, warning that global problems “will not be solved by one country taking the lead.”
“We, and many others, recognize the idea that there are two poles when it comes to the future, one centered on the United States and one centered on China,” Guterres said at a press conference on January 29.
“If we want a stable world, a world where peace can be sustained, development can be generalized, and ultimately our values can prevail, we need to support multipolarity,” he added.
