There’s a country in Latin America that’s not even as big as South Carolina, but on which the United States’ economy and national security depend: Panama.
Every year, 40 percent of all U.S. container traffic, valued at $270 billion, passes through the Panama Canal. So does an estimated 5 percent of all seaborne trade in the world. If conflict were to break out between China and Taiwan, the U.S. Navy would have to move submarines and other warships quickly to the Pacific through the canal.
Since December, President Trump has mentioned Panama numerous times in speeches, interviews and on Truth Social, repeatedly threatening to “take back” the Panama Canal, which the United States controlled from 1914 to 1999. Since these expansionist demands started, he has extracted a growing list of concessions from Panama’s conservative president, José Raúl Mulino, including opening negotiations to compensate U.S. Navy vessels for fees they pay to use the canal and permitting U.S. military personnel to deploy to Panama-controlled bases throughout the country on a rotating basis. (The last permanent U.S. military base closed in 1999, a decade after the U.S. invasion of the country.)
Some of Mr. Trump’s demands are aimed at deterring China, which has gained commercial influence in Panama since the country broke ties with Taiwan in 2017. When Secretary of State Marco Rubio visited Panama in February, he told Mr. Mulino that Chinese influence on the canal was potentially in violation of a U.S.-Panama treaty. After speaking with Mr. Rubio, Mr. Mulino said Panama would exit China’s Belt and Road Initiative — a move that China said stemmed from U.S. “coercion.” Panama also audited two Chinese-controlled canal-side ports, following Mr. Trump’s accusations of Chinese interference in the canal.
Mr. Trump is not unreasonable to be concerned about growing Chinese influence in Panama, which had the Biden administration on high alert, too. But it isn’t clear what, if anything, Panama will receive in return for these concessions. And that’s making many Panamanians, already angry with their government and the country’s political class, even angrier.
Mr. Trump’s latest demand — which Mr. Mulino has rebuffed for now — is free passage for U.S. commercial vessels through the canal, an emblem of national pride and the source of roughly 7 to 10 percent of Panama’s annual government budget. Students, labor unions, environmentalists and Indigenous activists have held demonstrations across the nation, rallying against their government’s policies and a general sense, justified or not, that Mr. Mulino is caving to pressure from Mr. Trump, instead of defending Panamanian sovereignty.
Mr. Trump may not intend or realize it, but by pushing Mr. Mulino for repeated concessions, he is weakening an ally and rolling the dice on what comes next. A politically, economically and socially unstable Panama would be worrying for the United States. If it puts the canal at risk, it could lead to disaster.
As a writer and researcher who has lived throughout Latin America, I never used to include Panama on my shortlist of countries that might erupt. From 1970 to 2019, it was the 16th fastest growing economy in the world in per capita terms. Poverty fell considerably during those years. Over the past decade, Latin America’s economies grew on average at a sluggish 0.9 percent per year; roughly around the same time period, Panama’s average yearly real gross domestic product growth more than quadrupled that rate. This was thanks to a boom in finance, construction, private investment and Panama’s professional management of the canal — which it modernized, expanded and administered apolitically in the years after 1999, when the United States handed over control. Among the beneficiaries were Panamanian and U.S. businesses, especially U.S. energy exporters, which took advantage of the canal’s doubled capacity to ship more liquid natural gas to Asia.
But within Panama, the benefits of all this growth were highly unequally distributed. In the 2000s and 2010s, the government routinely spent less on public education, as a percentage of G.D.P., than the Latin American average. Students performed worse on standardized tests than many regional peers, according to 2022 data. And a 2023 census reported that a full quarter of homes still lacked access to drinkable water 24 hours a day during Panama’s dry season. Also in 2023, the top-earning fifth of Panamanians received over half of the income in the country. Meanwhile, the bottom-earning fifth got just 3.5 percent. Within Latin America, Panamanians are among the most dissatisfied with democracy, political parties and public services.
In October 2023, that frustration boiled over. Unions, public school teachers and protesters shut down major roads for 25 days over a copper mining contract, in the largest mass mobilization in decades. At the heart of the uprising was the widespread perception that the government habitually favored opaque private and foreign interests over ordinary people. During the protests, at least four people died. The demonstrations also cost Panama the equivalent of 2.3 percent of the previous year’s G.D.P.
Now, that same sense of frustration risks overflowing — this time, inflamed not just by domestic grievances like corruption and inequality, but also by a sense that Mr. Mulino is prioritizing appeasement of Mr. Trump over Panama’s interests. In January, 51 percent of Panamanians thought the Mulino government was doing well, but by March, just 26 percent did. The discontent was palpable when I visited Panama several weeks ago. “Protests like those of 2023 could reignite with one gross act of injustice,” Alonso Illueca, a lawyer and academic, told me.
In March, Mr. Mulino passed a controversial law to increase employee contributions to the public pension system, which was quickly running out of cash. On April 23, several public school teachers’ unions and a large construction workers’ union started a strike, protesting the pension changes, moves to reopen a controversial copper mine, and the agreement Mr. Mulino made with the U.S. defense secretary, Pete Hegseth, to allow U.S. military personnel to position themselves on bases around the canal on a rotational basis.
Two runners-up for the presidency, once rivals, joined civil society leaders for a press conference denouncing the deal with the United States. Then, in May, after Mr. Mulino implied the country’s largest public university was a den of terrorists, thousands of Panamanians, led by students, took to the streets in what appeared to be this wave of unrest’s biggest demonstration yet.
Now Mr. Mulino is facing calls from the private sector to take control of the streets and clear roadblocks of protesters, which have paralyzed the Bocas del Toro province. He’s pledged, “No matter the cost, this country will not be shut down.” But if the protests escalate and the government weakens further, Mr. Mulino won’t be as successful in addressing U.S. concerns on China or the canal’s water supply, whose susceptibility to climate change and drought have already at times decreased the traffic through the canal and raised costs for U.S. exporters.
A weaker Mulino government is the most likely outcome if Mr. Trump and his administration continue to push hard — and publicly — for new concessions. On Wednesday, the U.S. ambassador to Panama visited the canal and posted on X that he would work to ensure the passage of U.S. government vessels for free. A quieter diplomatic approach would advance U.S. interests more effectively and with lower risk.
Unfortunately, Mr. Trump has already learned that maximalist threats like “retaking the canal,” directed against a small country like Panama instead of Canada or Denmark, can actually work, even as the public’s mistrust of government deepens with each demand.
If Mr. Trump wants to fully retake the canal and engage in a new era of U.S. territorial expansion, a destabilized Panamanian government plays in his favor. A serious bid to take back the canal — using tariffs, imposing sanctions or other tools to pressure the government into a handover — would ignite the country. For Panama, the United States and the world, that may be the ultimate risk.
Will Freeman is a fellow for Latin America studies at the Council on Foreign Relations.
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