An Asset Too Precious to Cede Makes Panama Leader a Trump Target

(Bloomberg) -- Panama’s Jose Raul Mulino had already done a lot to appease the incoming American president. He’d clamped down on migration routes and declared his country the new southern border for the US.

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But that was before Donald Trump came asking for the one thing the president of the tiny Central American country could never cede — control of the Panama Canal. In the span of weeks, the 65-year-old former diplomat had to think on his feet about appeasing the US on a whole other front to protect his nation’s most precious asset.

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The concessions thus far have included renouncing a deal with China and letting US Navy vessels get free passage through the waterway. A next step could be the cancellation of Panama’s contracts with Hong Kong-based Hutchison Ports PPC, which operates two loading areas near the canal.

Such a move could simultaneously ease Trump’s worries about Chinese influence over the vital trade passage and prove to Panamanians that Mulino won’t give in on a major source of national pride — even in the face of military threats. It’s also a model for the kind of dance and on-the-spot shrewdness leaders across the world will need to engage in if they want to anticipate and preempt Trump’s next unexpected assault on sovereignty.

“He has made a conscious call that he’s not going to surrender sovereignty over the canal, but he has to go through performative diplomacy, perhaps even making a few difficult calls, in order to save that,” said John Feeley, a diplomat who resigned his post as US ambassador to Panama during Trump’s first term over differences with the president. “Mulino is a smart enough poker player to realize that it’s not in his interest to call Trump’s bluff, so what he has to do is work around it.”

Mulino has unexpectedly emerged as a central character in the opening stages of the Trump presidency. While leaders of Mexico, China and Canada knew from the start that they’d be targets of tariff threats, Trump’s menacing about retaking the canal came much more suddenly.

It turned Mulino into a target, posing a test of nerve for a leader who is still less than a year into his own presidency. Even his presence in the dispute is somewhat improbable: Mulino has deep experience in Panamanian politics but only emerged as a contender in last May’s election when former President Ricardo Martinelli was convicted on corruption charges and barred from the race, leaving his running mate at the top of the ticket.

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An investor-friendly conservative with Trumpian tendencies of his own, Mulino had seemed poised to to get off to a good start with the new president. Last year, he blasted the Panama Papers and resulting investigations into global money laundering as an “international hoax” to discredit his nation. And while he took office amid fiscal woes, a struggling social security system and droughts that strained the canal, he also made strides to address issues close to Trump’s heart.

On the campaign trail, he pledged a border crackdown and a “full-frontal assault” against drug trafficking. His first day in charge, he inked a deal with the Biden administration to make it easier for Panama to remove some migrants. By December, with Trump on the brink of return, crossings through Panama’s Darien Gap — a perilous stretch of the trek from South America to the US — had plunged to their lowest level in nearly three years.

Instead of welcoming Mulino as a partner, however, Trump took aim at the canal that the US agreed to build in 1903, when it signed a treaty guaranteeing Panama’s independence from Colombia in exchange for permanent rights to operate the waterway. By the middle of the century, US control had turned into a source of regional tension, leading President Jimmy Carter to agree in 1977 to hand it back to Panama in 1999.

That agreement has contributed to the isthmus nation’s development into a relatively stable financial oasis in a turbulent region. The canal brought in nearly $5 billion in fiscal 2024, or about 4% of Panama’s gross domestic product.

But Trump has long regarded Carter’s move as a mistake. He once referred to it as the “worst deal in American history,” according to Feeley. Specifically, Trump wants Panama to slash the costs of passage for US ships. His broader concern, though, is Chinese influence over the canal, which he says could jeopardize the route where about 75% of cargo is going to or coming from the US.

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That has made life difficult for Mulino, who had pledged to maintain close ties with Washington and Beijing — a common regional posture that was already becoming increasingly untenable with Trump in office. Trump’s refusal to take military force off the table also risks inflaming patriotic rage in a country where the US has a history of intervening in domestic affairs: It supported the country’s military regime during the Cold War before conducting a 1989 invasion that deposed General Manuel Noriega.

“Give too much to the US and risk nationalist protests,” said Orlando Perez, a professor of political science at the University of North Texas at Dallas who has studied Panama for three decades. “Incur further wrath of the US and risk the country’s most important ally. It’s a tightrope.”

Mulino has nevertheless begun to find his balance, even as Trump’s pressure intensifies. When Secretary of State Marco Rubio visited Panama during his first foreign trip last weekend, Mulino made concessions while reiterating that the canal would remain firmly in Panamanian hands. He also announced that the nation would leave China’s Belt and Road Initiative, an infrastructure program primarily for developing countries.

He has leaned on a strategy leaders like Mexico’s Claudia Sheinbaum have also deployed: His administration was aware it would have to hand Trump a foreign policy win, according to someone familiar with the government’s thinking who spoke on the condition of anonymity to discuss the strategy.

But it also tried to deliver that victory without too steep a cost to itself. While members of the Trump administration hailed the Belt and Road move as a “step in the right direction,” Beijing experts saw it as a mostly-symbolic gesture.

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Panama will still be able to access Chinese funding, said Oliver Stuenkel, an international relations professor at the Getulio Vargas Foundation in Sao Paulo. He pointed to Brazil, which has refused to join China’s program but still hauled in more than $1.7 billion in investment from the Asian nation in 2023.

It remains unclear whether Panama will cancel the contracts with Hutchison, or if that would be enough to satisfy Trump. But “what we have seen with many of these issues is that the can gets kicked down the road,” said Perez.

For Mulino, who has a litany of problems to deal with at home, that’s almost certainly good enough.

--With assistance from Eric Martin.

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