After a series of calibrated Chinese retaliatory actions including tightened shipping inspections, frozen infrastructure projects, international arbitration and disrupted agricultural exports, Panama’s economy began feeling real pain from its decision to exit the Belt and Road Initiative and seize the Hong Kong operated port concessions through lawfare. Facing mounting losses that cost the country millions of dollars per day in transit fees and flag registration revenue, President Mulino suddenly abandoned his confrontational posture and attempted to downplay the tone of the conflict in early April.

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Why Panama’s President Suddenly Softened His Tone Toward China

By early April, the mounting economic pressure appeared to be producing a shift in tone from Panama City. On April 9, 2026, President José Raúl Mulino sought to dial down the confrontation, striking a markedly more conciliatory posture. While his foreign minister had just a day earlier on April 8 accused China of retaliating against Panama by stepping up inspections of Panamanian flagged vessels, yet Mulino publicly sought to decouple the technical from the political.

President Mulino was quoted as saying

“We are not interested in having a problem with China. I hope that this situation de-escalates and that we return to a normality both in the political relationship and in the understanding that this is a problem that will be resolved.”

When asked about Panama flagged vessels being held in Chinese ports, Mulino said such inspections were not unusual in global shipping stating “they have nothing to do with political retaliation,” describing the matter as a “technical issue,” while noting that the inspected cargo and vessels do not belong to Panama itself but are merely flying the Panamanian flag. His remarks don’t mention any substantive policy reversal on the port concession issue, as he only meant to lower the temperature and maintain the image that Panama did not execute economic lawfare because of pressure of the US but China doesn’t seem to be buying it.

Washington’s Pressure Via Panama and Beijing’s Measured Retaliation

In early 2025, Washington intensified its campaign to curb Chinese influence in Latin America, targeting Panama as a key strategic node. Following heightened United States pressure that included explicit warnings from Secretary of State Marco Rubio and President Donald Trump, Panama announced in February 2025 that it would not renew its memorandum of understanding under China’s Belt and Road Initiative, becoming the first Latin American nation to exit the program. And the pressure did not stop there as less than a year later, Panama’s Supreme Court, after a review initiated under American scrutiny, declared unconstitutional the long-standing concession contracts under which a Hong Kong based company, CK Hutchison’s subsidiary, Panama Ports Company (PPC), had operated the Balboa and Cristobal terminals at both ends of the Panama Canal for nearly three decades. In a coordinated move of economic lawfare to bar Chinese entities from any meaningful role in the strategic waterway, Panamanian authorities seized the ports, confiscated company property including private and protected documents, and denied the operator access to its own files and computer systems. Beijing responded by condemning the actions as “extremely absurd” and warning that Panama would pay a “heavy price” if it did not correct its mistake, while CK Hutchison initiated international arbitration proceedings, later raising its claim to more than two billion dollars.

What followed in March and April of 2026 constituted a calibrated and multi-layered economic reprisal by China, one that demonstrated Beijing’s ability to impose consequences through commercial and regulatory channels rather than direct confrontation. Chinese shipping giant COSCO suspended its operations at the Balboa port, marking what industry observers identified as the first concrete retaliatory measure following Panama’s forced takeover of the Chinese linked port assets. Domestic Chinese shipping companies began diverting cargo to alternative Latin American ports, costing Panama an estimated 800,000 dollars per day in lost transit fees.

From early March, Chinese customs authorities dramatically ramped up agricultural inspection standards for Panamanian products, directly impacting trade that accounted for roughly 39 percent of Panama’s exports to China, with more than 70 percent of the country’s tropical fruit exports such as bananas and pineapples facing severe disruption. Simultaneously, Chinese authorities began subjecting vessels flying the Panamanian flag to rigorous inspections and detentions at Chinese ports. Data from the Tokyo Memorandum of Understanding showed that out of 124 vessels detained at Chinese ports in March, 92 or nearly 75 percent flew the Panamanian flag, a dramatic increase from previous months. This measure struck directly at Panama’s economic model as the world’s largest flag of convenience registry, which generates annual registration fee revenue of approximately 650 million dollars from more than 8,600 registered vessels, with daily losses estimated at 1.8 million dollars as shipping companies rushed to reflag their vessels.

Beyond the shipping and agricultural sectors, Beijing also suspended all new investment projects in Panama, including the 1.4 billion dollar fourth bridge over the Panama Canal, freezing the country’s long term infrastructure development.

Furthermore, Chinese authorities summoned the global shipping giants Maersk and Mediterranean Shipping Company, which had taken over temporary management of the two ports, for official talks, prompting both companies to adjust their stance and urge Panama to de-escalate tensions given their deep dependence on Chinese shipyards for 90 percent of their new vessel orders.

After that in early April 2026, Panama Ports Company initiated a separate arbitration proceeding against the Danish logistics giant Maersk, accusing the company of conspiring with Panama to undermine its existing contract and clear the way for a Maersk affiliated operator to take over the Balboa terminal at the Pacific entrance of the Panama Canal. Since after the Supreme Court ruling that declared the long-standing concession unconstitutional, subsidiaries of Maersk and the Mediterranean Shipping Company were hired to assume temporary management of the two terminals. The Panama Ports Company, which is already pursuing a separate arbitration claim against Panama for damages exceeding two billion dollars, stated that the case against Maersk would be heard in London, while Maersk denied liability and promised to respond in the appropriate forum.

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Miguel Santos García is a Puerto Rican writer and political analyst who mainly writes about the geopolitics of neocolonial conflicts and Hybrid Wars within the 4th Industrial Revolution, the ongoing New Cold War and the transition towards multipolarity. Visit his blog here. 

He is a Research Associate of the Centre for Research on Globalization (CRG). 

Featured image is from the author

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