Panama’s President Mulino Offers New Opportunities to the United States in Competing With China

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Panama’s decision in 2017 to jettison Taiwan and establish diplomatic relations with China caught the United States off guard and signaled Beijing’s growing influence in Latin America. It was the first time China had poached a country in the region in a decade, and it cleared the way for others to ditch Taipei, including the Dominican Republic, El Salvador, Nicaragua, and Honduras.

Now, however, Panama might consider reversing the trend it started, provided that Taiwan and the United States protect it from Beijing’s inevitable backlash and compensate for economic losses. Restoring formal ties to Taipei, or simply rebuilding the relationship, would be a big victory for Taiwan in Latin America, which is home to seven of the 11 countries that still recognize it as a sovereign state. It would also represent a rare win for the United States in its fight for influence in a region where its power was once largely uncontested.

In May, Panamanians elected a conservative former foreign minister, José Raúl Mulino, as president. It was an awkward moment for the United States. Mulino had been hand-picked by former President Ricardo Martinelli after the State Department sanctioned Martinelli for corruption and Panama’s Supreme Court prohibited his candidacy following a money-laundering conviction. Mulino’s campaign adopted the slogan, “Martinelli is Mulino, Mulino is Martinelli.”

But on the day of his election, Mulino pledged to be “nobody’s puppet,” and his ties to Martinelli have not colored his approach to the United States. He has moved quickly to portray Panama as a “strategic partner” for the White House. His foreign minister has traveled to Washington four times, including in July for a meeting with Secretary of State Antony Blinken. Panama has not shown similar affection for China, the Panama Canal’s No. 2 customer.

The United States has a complicated history with Panama. President Theodore Roosevelt helped secure Panama’s independence from Colombia in 1903, and the United States built the Panama Canal, still the country’s most important economic asset and source of national pride. But over time, U.S. control over the canal was resented as a remnant of imperialism. The dispute increasingly soured the relationship until U.S. President Jimmy Carter negotiated an agreement to hand over the waterway. In 1989, the United States invaded Panama; deposed its strongman ruler, Manuel Noriega; and prosecuted him for drug trafficking.

These days, the United States is widely admired in Panama. Nearly 80 percent of Panamanians have a positive view of America, almost double the number that view China favorably, according to the polling organization Latinobarómetro.

Mulino has shown special interest in issues that interest the White House. Just hours after his inauguration, Panama signed an agreement with the United States to deport migrants arriving from Colombia through the Darién Gap on their way north. He has also supported the U.S. hard line on Venezuela following its disputed election in July, at one point offering asylum to President Nicolás Maduro, who claimed victory, to help Venezuela facilitate a political transition. That would reprise Panama’s role in the 1970s, when it welcomed the deposed shah of Iran, whose presence in the United States had complicated negotiations over the release of American hostages in Tehran. Panama could be an even more important partner beginning next year, when it starts a two-year term on the United Nations Security Council.

A more decisive change in Panama’s foreign policy would make it an outlier in a region where steadily rising Chinese influence has led most governments to favor nonalignment. Despite years of warnings from the United States about Chinese “corrosive capital,” leaders of all ideologies have made a beeline to Beijing in search of investment. Two years ago, Argentina joined China’s signature Belt and Road Initiative. During 2023, eight presidents from the region visited China, including the leaders of Brazil, Chile, and Colombia. Trade between China and Latin America has exploded, from $14 billion in 2000 to $500 billion in 2022.

Given those trends, it is not clear how far Panama’s new government might be willing to go in redesigning its China policy. Favoring Taiwan over China is rarely a popular political decision. Even Taiwan’s closest allies, including the United States, have formal ties with Beijing rather than Taipei. Meanwhile, the cost of antagonizing China is growing ever higher, as Beijing punishes those that go against its political or economic interests.

China is notoriously intolerant of disagreement on Taiwan, even if the detractor is 10,000 miles from the disputed island. Just ask Paraguay, Taiwan’s sole diplomatic partner in South America, where China withheld vaccines at the height of the COVID-19 pandemic. Or Haiti, where Beijing is reportedly protesting Haiti’s ties to Taipei by opposing a U.S. plan for a U.N. peacekeeping mission to dislodge the criminal gangs that control 80 percent of the capital. Last year, the Central American Parliament expelled Taiwan, where for decades it served as a permanent observer, and replaced it with China.

Panama, moreover, needs all the friends it can get. Its economy suffered a series of blows in recent years, including the pandemic, nationwide protests, the closure of a major copper mine, a drought that disrupted canal operations, and the loss of its investment grade rating. Rather than take sides in the U.S.-China rivalry, the business community prefers to drink from both cups. China has a major presence in Panama’s Colón Free Trade Zone, and it is currently building a fourth bridge over the canal.

But even if Panama does not restore diplomatic ties to Taiwan, it could strengthen their relationship, demonstrating that Taiwan could be a valuable partner to all countries in the region—and that Panama’s foreign policy reflects Panamanian interests. As a first step, Mulino might consider inviting Taiwan’s new president, Lai Ching Te, to visit Panama City on his first trip to the region to discuss options for cooperation. One promising area is semiconductors, given Taiwan’s expertise and Panama’s ambitions. Panama is already a recipient of U.S. funds intended to promote the “nearshoring” of chip production.

For its part, the United States could use this opportunity to showcase meaningful alternatives to Chinese money. Panama is mulling two mammoth projects, a $1.6 billion dam to meet the canal’s freshwater needs and a 250-mile tourist train from the capital to the western city of David. The U.S. government and U.S. companies could play a role in both projects as well as in meeting other infrastructure needs. Washington could provide further support by admitting Panama to the updated North American free trade agreement. A visit by the next U.S. president would also go a long way. Roosevelt’s 1906 tour to inspect canal construction was the first overseas travel by a U.S. leader, but it has been almost a decade since the last presidential trip to Panama.

China has been schooling the United States in Latin America for decades, but a strong showing in Panama could begin to turn the tide. This is the right moment for a comeback. China’s lending to the region has fallen sharply, to $1.3 billion on average each year between 2019 and 2023 compared to $25 billion recorded in 2010. In the meantime, debt to China is coming due, sapping goodwill. Many governments run trade deficits with China. Countries that dropped Taiwan—such as Costa Rica —have buyer’s remorse, with unmet expectations for big investments and rising trade.

Regional leaders are beginning to stand up to Beijing. In Brazil, Chile, and Mexico, China faces investigations into alleged dumping. Costa Rica is trying to exclude the Chinese company Huawei from building advanced cellular networks. In November, Argentina elected a president who campaigned on a promise not to “do business with any communists.”

Washington is typically tightfisted when it comes to Latin America, but there is bipartisan interest in outmaneuvering China and recognition that Panama’s new government is a potentially important ally in that competition. China had a “foothold” in Panama, one senator said at a recent hearing, “until we got this president in down there.” Will the United States seize this opportunity? It is hard to say, but it should.

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