The Panama Canal is a hinge point in Donald Trump’s new order

After a year of threats and declarations of hemispheric domination, Donald Trump’s campaign to “take back” the Panama Canal, wresting it from alleged Chinese control, has yielded results at last. On January 29th Panama’s Supreme Court ruled that the contract held by Panama Ports Company, a subsidiary of the Hong Kong-based conglomerate CK Hutchison, to operate the ports at each end of the canal, breaches Panama’s constitution. The next day José Raúl Mulino, Panama’s president, said that APM Terminals, part of Maersk, a Danish outfit, would run the ports until new contracts can be tendered. It is hard to imagine that any of this would have happened without the pressure applied by the United States. The secretary of state, Marco Rubio, said the United States was “encouraged” by the decision. But new risks loom for Panama.

In March last year it seemed that Mr Trump’s canal issues might be resolved with a commercial transaction. A consortium of Western companies would acquire the ports as part of a wider deal with CK Hutchison. But China resisted the sale. Three days after the deadline for the deal to close had expired, the office of Panama’s comptroller-general lodged the case involving CK Hutchison with the Supreme Court. Many Panamanians are angered by the unavoidable impression that their government and legal system are dancing to Mr Trump’s tune.

China’s Hong Kong and Macau Affairs Office called the ruling “absurd” and “pathetic”, adding that Panama would pay a “heavy price”. The Supreme Court’s decision cannot be appealed, but can be referred to international arbitration. On February 3rd CK Hutchison said it would do so. That could be costly, both financially and for the reputations of Panama’s political elites who have accommodated CK Hutchison over several administrations. China has other ways to hit back. It might decide to put limits on Panamanian-flagged ships, cut infrastructure financing to the country or push ahead with developing alternative trans-oceanic trade routes.

Mr Mulino called on CK Hutchison to “co-operate openly” in the transition period. But the firm has plenty of ways to disrupt trade. It might, for example, refuse or be slow to offer access to its proprietary software that runs the port terminals.

The ruling also hurts Panama’s investment credentials. In 2023 the Supreme Court ordered the closure of Cobre Panamá, a vast, foreign-owned copper mine. Panama lost its investment-grade rating four months later. And there is the issue of future tenders. Maersk, whose subsidiaries bought the railway running between the two ports last April and is set to operate the ports themselves during the transition, is in pole position to win. That risks exposing the Panamanian government to charges of favouritism.

Perhaps to avoid such allegations, in January the Panama Canal Authority (ACP), a state body, announced terms for two new ports and a liquefied-petroleum-gas pipeline. It has said previously that the tenders would be open to firms from any country. But were a Chinese company to submit the most competitive bid, the ACP would come under pressure to find creative ways to reject it, or risk angering the United States all over again.

The capture of Venezuelan dictator Nicolás Maduro and ominous threats over Greenland’s sovereignty grab the world’s attention, but the squeeze that Mr Trump has put on Panama is more relevant for the rest of the Americas. Small countries are vulnerable. The United States now wants a western hemisphere “free of hostile foreign incursion or ownership of key assets”. Panama could become a blueprint. Tomás Sucre Ulloa, a Panamanian lawyer following the case, notes that many Panamanian politicians who once defended CK Hutchison are now railing against it with the United States “breathing down their neck”. “The law didn’t change,” he says, “the geopolitical climate did.” ■