By Prof. Tridivesh Singh Maini

Introduction 

After the US Secretary of State Marco Rubio’s visit to Panama, earlier this month, the Central American nation pulled out from China’s Belt and Road Initiative (BRI) on February 3, 2025. US President Donald Trump and Rubio had warned Panama that the US would be compelled to take tough measures, if the Central American nation did not take concrete steps to end China’s control over the Panama Canal. The Panama Canal, built by the US, was handed over to Panama in 1999 under a treaty which had been signed in 1977 during the Presidency of the late Jimmy Carter.

Trump and US-Panama ties 

During his inaugural address, Trump expressed his displeasure over China “operating” the canal. The US President also said that conditions of the 1977 treaty were being violated and the US ships were being “overcharged” and not being treated fairly. Experts have clearly said that there is no provision in the 1977 treaty under which the US can take the canal back from Panama. 

Panama had signed an MOU with China to get on board with the BRI (Belt and Road Initiative) in 2017. China’s state owned China Harbour Engineering Company, won a tender for a canal bridge in 2018.  While announcing Panama’s exit from the BRI the Panamanian President, José Raúl Mulino said,  “I do not know what was the intention of those who signed this agreement with China. What has it brought to Panama all these years? What are the great things that this Belt and Road Initiative has brought to the country?”

Panama Ports Company – a subsidiary of Hong Kong based Hutchison Port Holdings — owned by the Hong Kong billionaire Li Ka-shing – has operated two of Panama canal’s ports, Balboa and Cristobal, since 1997 – when it won the tender. This contract was extended in 2021 until 2047. Two Panamanian lawyers have filed a complaint in the country’s Supreme Court, on February 4, 2025 asking it to cancel the contract regarding handling of the two Ports. The complaint states that the Hong Kong subsidiary has got undue concessions, which are clearly in violation of the constitution. China reacted strongly to this decision and summoned Panama’s Ambassador to China.

The Chinese Foreign Minister Zhao Zhiyuan said, “Any attempts to reverse the course on the BRI and go against the expectations of the Chinese and Panamanian people do not align with the vital interests of Panama”. China also criticised US efforts to discredit the BRI and attempt at influencing ties between Panama and China. The spokesperson of China’s Foreign Ministry, Lin Jian said, “The US side’s attacks … once again expose its hegemonic nature.”

With Panama deciding to pull out of the BRI and posing a possible re-think in the Central American region regarding its ties with China, the Trump administration may feel that its approach has succeeded though it may be premature to interpret recent developments in Panama as a triumph of Trump’s policies.

To what extent can countries successfully walk a tightrope between Washington and Beijing?

Not just Panama, but several other countries may be placed in a complex situation of walking a tightrope between the US and China. The US has been critical of China’s economic linkages with several countries – especially under the umbrella of the BRI. Here, it would be pertinent to point out that several countries have begun to re-calibrate their economic relations with China and there is an increasing talk of China’s loans to several developing countries for BRI related projects. This is leading to the piling up of unsustainable debts in these countries vis-a-vis China – or ‘debt trap’ – and as a result is increasing Beijing ‘s political leverage. It is not just bilateral ties with China which could cause a problem as Trump has been targeting BRICS – a China dominated organisation – and countries which are carrying out trade in non-dollar currencies.

US-Iran ties and impact on other countries 

Apart from Trump’s approach towards China and Russia, several countries would be carefully watching the US President’s approach towards Iran. While on one hand, Trump has made some reconciliatory statements vis-à-vis Iran but, on the other his administration has imposed more sanctions on Iran. Apart from this, Trump has also removed the Chabahar Port from the sanctions waiver. A ‘National Security Presidential Memorandum’ signed by Trump said, “The secretary of state shall modify or rescind sanctions waivers, particularly those that provide Iran any degree of economic or financial relief, including those related to Iran’s Chabahar port”. In its previous tenure the Trump administration had provided a sanctions waiver to the Chabahar Port.

The Port is India’s gateway to Afghanistan and Central Asia. India has been involved in the development of the Port since 2018 and has been pushing for Chabahar to be part of the INSTC (The International North-South Transport Corridor)  which would give a boost to connectivity and trade between India and Russia. The Taliban Administration in Afghanistan has also expressed interest in expanding trade via Chabahar. It would be pertinent to point out that India had signed a 10 year agreement with Iran in May 2024 for development and management of the Chabahar Port.  The deal was signed between the Indian Ports Global Limited (IPGL) and the Port & Maritime Organisation of Iran. India has strongly backed the Chabahar Project days before PM Modi’s US visit.

Conclusion

Panama’s decision to pull out of the BRI and China’s reactions clearly reiterate the point that while some of the conditionalities imposed by Trump can be addressed, in certain instances countries may be in a tough position to strike a balance between their ties with the US and other countries. While on certain economic issues linked to bilateral ties it is easy to make concessions, but when it comes to complex strategic issues it remains a bit tricky. While watching out for his country’s interests, Trump should be pragmatic and accommodative with the interests of other countries.

Author’s Bio: Prof. Tridivesh Singh Maini is an Assistant Professor at the Jindal School of International Affairs. He was also a Public Policy Scholar with The Hindu Centre for Politics and Public Policy and Asia Society India-Pakistan Regional Young Leaders Initiative. He was also a former South Asian Voices (SAV) Visiting Fellow (Winter 2016) with the Stimson Centre, Washington DC.

Image Source: Losing strategic control of the Panama Canal to the People’s Republic of China – Washington Times