1The Panama Canal, completed in 1914, has long served as a strategic artery for global maritime transport and as a cornerstone of the U.S.-led order throughout the twentieth century. This order began to shift when the United States transferred control of the canal to Panama in 1999, reducing its direct presence and creating space for new actors. In the twenty-first century, the intensification of the U.S.–China rivalry has further reshaped this landscape, as China seeks to expand its influence through initiatives such as the Belt and Road (BRI), while regional actors navigate the uncertainties of a still-limited hegemonic vacuum (Serrano-Moreno J., 2023: 152-153). Panama’s trajectory is particularly salient: it became the first country in the region to join the BRI in 2018 and the first to withdraw in 2025. This early participation seemed to strengthen neither regional integration nor create a stable bilateral framework, as the memorandum was largely symbolic and non-binding (Serrano-Moreno J. et al., 2021).
2Existing scholarship tends to rely on the discourse of a U.S.–China bipolar structure, focusing on expectations and rhetoric while offering limited analysis of actual policy implementation and institutional development. At the macro level, Jenkins argues that China’s rise could reshape regional dynamics and alter the “rules of the game” long defined by Western-led institutions such as the IMF (International Monetary Fund). This transformation might expand policy space for developing countries, enabling strategies to be more development-oriented than past structural adjustment models. For Sub-Saharan Africa and Latin America and the Caribbean alike, this represents a potential turning point away from resource dependence toward a broader reconfiguration of global governance (Jenkins R., 2018: 344-345).
3In contrast, at the micro level, Jenkins demonstrates that the empirical impact of BRI participation in Latin America—in terms of trade, investment, finance, and infrastructure—has remained limited. He contends that the BRI largely constitutes a “repackaging of existing relations” rather than a dramatic change (Jenkins R., 2021: 13, 18-22, 33).
4Furthermore, recent research by Chen and Qiang (2024) offers a nuanced analysis of how external pressure and state capacity interact to enable strategic action, emphasizing the agency of small states. However, this study remains narrowly focused on the Taiwan Strait and framed within the U.S.–China rivalry, leaving unaddressed broader patterns of adaptation to shifting hegemonic structures, the implications of China’s economic penetration through the BRI (ports, logistics, infrastructure investment), and the role of non-military actors such as Japan.
5This divergence between macro-level expectations and micro-level realities highlights a critical research gap: global narratives anticipate systemic change, yet Panama’s experience suggests historical continuity in negotiation culture, institutional fragility, and reliance on external actors. Moreover, as Serrano-Moreno notes, BRI scholarship suffers from conceptual ambiguity and a lack of case-based empirical studies, with limited analysis of specific projects and related legal-political controversies (Serrano-Moreno J., 2023: 153). Against this backdrop, this study examines how Panama, positioned between the U.S. and China, has sought to calibrate its diplomatic choices and assesses whether Japan’s qualitative contribution—characterized by the provision of public goods without military force—constitutes a viable third option.
6To address these gaps, this study pursues two objectives: (1) to examine the historical continuity of hegemonic vacuums and multipolar competition through the case of Panama, elucidating the strategies employed to balance external pressures with domestic demands; and (2) to reassess Japan’s role in institutional construction and stabilization of Panama after the canal’s return, situating this contribution within the context of contemporary multipolar diplomacy, where Latin America’s heterogeneity demands country-specific historical analysis—precisely what this study offers through the case of Panama.
7Methodologically, this research is grounded in diplomatic history and employs empirical analysis based on declassified diplomatic records, official documents, and oral histories to illuminate the nexus between negotiation processes and institutional conditions. Whereas existing studies have privileged discourse, this study reconstructs the nuanced practices and diplomatic culture of the negotiators, examining the transition from personalized diplomacy to institutionalization and thereby offering a fresh perspective on diplomatic history. While rhetorical flourishes often attract attention, this study demonstrates that the consolidation of institutional frameworks constitutes the solid foundation of sustainable diplomacy.
8To provide historical context for Panama’s evolving diplomatic strategies under shifting hegemonic structures, Section 2 traces Panama’s historical transformation into a strategic corridor. Section 3 analyzes the debt crisis of the 1980s and the second canal project, exploring how personalized diplomacy and institutional fragility amplified external pressures while laying the foundation for long-term ties with Japan. Section 4 focuses on the reconstruction in the 1990s following Operation Just Cause, showing how Japan’s contributions to human resource development and institutional capacity helped stabilize Panama within a still-limited hegemonic vacuum. Section 5 examines the manifestation of this vacuum in the twenty-first century alongside China’s growing presence, assessing the reconfiguration of Panamanian diplomacy. Finally, Section 6 evaluates Panama’s diplomatic options under U.S.–China competition and Japan’s public-goods-oriented efforts as a potential non-binary approach.
9This section analyzes how imperial competition, technological innovation, and nationalism shaped Panama’s evolution from a colonial transit point into a strategic corridor.
10Founded by Spain in 1519, Panama became a vital transit route for silver shipments linking the Atlantic and Pacific Oceans. After gaining independence in 1821, it was incorporated into Colombia. However, the nineteenth century saw intensifying imperial rivalry as the United States, Britain, and France initiated surveys for canal construction. France attempted to build a sea-level canal in the 1880s but failed; the United States subsequently abandoned the Nicaragua option in favor of Panama, securing canal rights after supporting Panamanian independence in 1903.
11Construction began in 1904, and the Panama Canal opened in 1914 as a symbol of U.S. hegemony. Notably, Japan was the first Asian country to recognize Panama (1904), and the establishment of diplomatic relations merits attention. Japanese engineer Akira Aoyama contributed to the canal’s construction, signaling the early emergence of technical cooperation.
12During World War II, the U.S. considered expanding the canal to accommodate battleships, but the rise of aircraft carriers rendered the plan obsolete. In the 1960s, during the Cold War, renewed interest from the Soviet Union and France underscored the canal’s strategic importance (Kobayashi S., 2000: 79-80). The Interoceanic Canal Study (1970) by the Atlantic-Pacific Interoceanic Canal Study Commission of the United States explored the use of nuclear excavation technology, yet environmental concerns and public opposition led to the cancellation of these projects (JICA, 1985).
13By the 1970s, the oil shocks and rising maritime transport costs, coupled with the trend toward larger vessels, made canal transit constraints central to global shipping and energy strategies. For Japan, heavy dependence on stable energy supplies and maritime routes elevated the canal to a critical chokepoint—a perception repeatedly emphasized by successive Japanese ambassadors, who urged the Ministry of Foreign Affairs to expand cooperation with Panama (Hosoda H., 2024: 155-156).
14The nationalization of the Suez Canal in 1956 served as a reference point, fueling nationalist sentiment within Panama. General Omar Torrijos championed sovereignty and independence, enacting banking legislation in 1970 to promote Panama’s emergence as a financial hub. He pursued multilateral diplomacy on platforms such as the United Nations and the Non-Aligned Movement, inspired by Yugoslavia’s Josip Broz Tito (Brown J., 2024). The Torrijos–Carter Treaties of 1977 paved the way for U.S. military withdrawal and canal transfer in 1999.
15Torrijos skillfully alternated between appeals to self-determination and economic benefits, framing canal restitution as a moral cause both domestically and internationally. He cultivated ties with Japan, Europe, the Middle East, and the Global South, advancing multipolar diplomacy. During his European tours, he sought not material aid but moral endorsement, although he also promoted investment opportunities such as copper mining projects (Hosoda H., 2024: 87-92). According to Torrijos:
No lo fuimos a pedir. Ni en España, ni en ninguno de los otros países visitados, hemos ido a pedir nada. Por el contrario, llegamos a dar, a ofrecer la ocasión de ponerse a la altura moral de nuestra causa (We did not go to ask for anything. Neither in Spain nor in any of the other countries we visited did we go to request anything. On the contrary, we came to give—to offer the opportunity to rise to the moral level of our cause) (Torrijos O., 1978: 63).
16In contrast, China’s presence in Panama during this period was negligible; at that time, it was reliant on ODA (Official Development Assistance) from Japan, including yen loans and technical aid, for the development of its economy. From the late 1970s through the 1990s, Beijing focused on domestic reforms, with only limited engagement in Latin America.
17This historical trajectory—where Torrijos leveraged multilateral diplomacy through the UN and the Non-Aligned Movement to reduce U.S. dependence in a Panama characterized by weak governance—laid the groundwork for a strategy of using diplomacy to reconcile domestic economic and social challenges.
18The oil shocks of the 1970s recycled the OPEC (Organization of the Petroleum Exporting Countries) petrodollars into international financial markets, prompting Latin American countries to take on substantial external debt for large-scale development projects. Panama, with its underdeveloped domestic capital market, was no exception: massive investments fueled a brief period of prosperity. However, rising interest rates and global economic stagnation in the late 1970s caused debt to balloon, plunging Panama into a severe debt crisis during the 1980s. This crisis strained public finances and depleted resources essential for maintaining public services and infrastructure.
19Amid this vulnerability emerged the “Second Canal Project”. Discussions began at the intersection of U.S. strategic interests, Japan’s resource transport needs, and Panama’s economic ambitions, but the initial momentum relied more on individuals than institutions. In 1979, Torrijos visited Japan and met Shigeo Nagano, Chairman of Nippon Steel and President of the Japan Chamber of Commerce and Industry, and the two developed a strong personal rapport and shared understanding, signaling their willingness to pursue a new canal plan (Hosoda H., 2024: 155-161).
20The sudden death of Torrijos in 1981—who had shown sympathy for certain ideas of social democracy—eroded the cohesion of the military regime. In the U. S., Senator Mike Gravel of Alaska, a strong advocate of the project, lost the 1980 primary election, and Nagano passed away in 1984 (Hosoda H., 2024: 170). Thus, the individually driven mega-project began shifting toward bureaucratic management. In fact, even before Nagano’s death, around 1982, the Ministry of Foreign Affairs had started to institutionalize the initiative by creating informal study groups and other mechanisms.
21The Ministry of Foreign Affairs exercised caution to avoid being perceived as “economic animals”, seeking to advance the initiative under the banner of international cooperation while avoiding excessive involvement (DA, MOFA to EP, 1982). The fact that the project could continue even after the loss of key figures demonstrates a critical turning point toward institutionalization in Japanese diplomacy.
22In 1985, the Commission for the Study of Alternatives to the Panama Canal, a tripartite commission comprising Panama, the United States, and Japan was established, launching international feasibility studies on a sea-level canal and other options. However, a contemporaneous report by the U.S. Chamber of Commerce reinforced perceptions of Panama as “inefficient and disorganized”, underscoring the institutional fragility that complicated implementation (DA, MOFA to EP, 1985b).
23Japan expanded economic cooperation with Panama following President Aristides Royo’s 1980 visit to Tokyo, focusing on technical assistance and grant aid rather than yen loans within the ODA framework to strengthen human resource development and social infrastructure. Key initiatives included a vocational training center, educational television broadcasting, mapping projects, and fisheries and forestry resource surveys. From the mid-1980s, Japan also launched the large-scale Panama Canal Alternative Route Study, deploying experts and conducting development surveys to strategically support Panama’s long-term vision for leveraging its geographic position (JICA, 1986).
24Ambassador Toru Ishii—highly regarded in Panama and urged to remain by President Royo—was politely declined by the Japanese government, reflecting Japan’s commitment to institutionalized diplomacy rather than personalized ties. However, Ishii later became a JICA (Japan International Cooperation Agency) senior vice-president, strengthening these initiatives. Regarding the feasibility study for the second canal, his successor, Ambassador Ryozo Mogi, remarked: “For Japan, this may be one of many major feasibility studies, but for Panama, it is a project of national destiny” (DA, EP to MOFA, 1985a). This approach underscored not only trust-building and risk mitigation but also the avoidance of “personalized diplomacy”. Japanese firms, meanwhile, leveraged the CFZ (Colón Free Zone) to access Latin American markets, signaling economic engagement distinct from the canal project.
25Domestically, Panama implemented structural adjustment policies under IMF and World Bank guidance, including port privatization and fiscal austerity. According to U.S. ambassador to Panama, Arthur H. Davis (1986-1990), the Noriega regime—initially perceived as cooperative by the CIA (Central Intelligence Agency) and the U.S. military—gradually lost U.S. trust. The ambassador actively supported anti-Noriega factions (Davis A., 1991: 23-74). When Manuel Noriega annulled the victory of a U.S.-backed candidate in the 1989 presidential election, Washington launched “Operation Just Cause”, capturing Noriega.
26The 1980s thus witnessed nearly contemporaneously Torrijos’s abrupt death, Noriega’s authoritarian consolidation, and a deepening debt crisis, which together hollowed out institutions and amplified external pressures. Although the Second Canal Project never materialized, Japan’s diplomacy focused on trust-building, laying the groundwork for long-term engagement.
27Under the Guillermo Endara administration, backed by the U.S., Panama faced the heavy burden of external debt repayment and implemented neoliberal reforms—including privatization and tax restructuring—in response to IMF and other international financial institutions’ demands. During this period, the concentration of cash transactions in the CFZ intersected with narcotics trafficking, exacerbating money laundering and prompting regulatory tightening and institutional reforms in the banking sector (GBL, WH, 1992).
28As counselor for Public Affairs in Panama Peter DeShazo (1991-1994) recalls, “The U.S. mission was essentially engaged in nation building. Panama was nearly starting over from scratch” with an empty treasury and the abolition of the Panama Defense Forces requiring creation of the new Panamanian National Police and restoration of the rule of law. These efforts unfolded as “Panama was a major smuggling route for drugs coming out of Colombia and up through Central America and Mexico to the U.S. – or through the Caribbean” and faced “lax banking regulations, ease and lack of transparency in setting up corporations, and lack of control over the Colon Free Zone – all of which made money laundering easier”. These vulnerabilities, combined with Panama’s role as a narcotics transshipment hub, drove U.S. efforts to rebuild democratic institutions and strengthen security apparatuses through what was then the third-largest AID program globally (DeShazo P., 2013: 61-63).
29China, meanwhile, established a commercial office in Panama in the mid-1990s and began developing logistics hubs. In 1996, Hong Kong-based Hutchison Whampoa modernized the ports of Balboa and Cristóbal, expanding investments ahead of Hong Kong’s handover (Kobayashi S., 2000: 320). Panama maintained diplomatic ties with Taiwan while cautiously deepening economic relations with Beijing (BRC, MIRE to JB, 1996). At the 1997 Universal Congress on the Panama Canal, experts predicted capacity constraints by 2015, while Taiwan’s participation and China’s retaliatory actions at the UN added complexity (Kobayashi S., 2000: 325–327). According to Panama’s foreign minister in 1999, the country historically valued its strong diplomatic ties with Taiwan and acknowledged Taiwan’s support following the U.S. invasion, even as it recognized China as a major economic partner and canal user, striving to maintain balance (BRC, JMA, 1999).
30In the U.S. Congress, concerns arose that Chinese port operations might pose security risks, but the State Department characterized Hutchison Whampoa as a commercial entity and emphasized its commercial nature and the importance of business ties (Committee on Foreign Relations, 1998; DOS-FL, BL to JK, 1997). Global and domestic factors further diverted U.S. attention: after the 1989 Tiananmen incident, China faced human rights criticism, while the Clinton administration (1993-2001) was preoccupied with domestic scandals and the Yugoslav Wars. The U.S.–Panama joint management regime persisted until the 1999 canal transfer, but the strategic environment shifted rapidly during the 1990s.
31Japan, anticipating the decline of U.S. military engagement, focused on human resource development and institutional capacity-building. Historically, Panama had relied heavily on U.S. pilots for canal operations, but following the 2000 transfer, Panama lacked domestic personnel that could meet the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers standards for vessel registration. To address this gap, JICA supported maritime training and communications, assisting in the professionalization of canal pilots. From 1993 onward, Japan dispatched long-term experts and educational materials to the Escuela Náutica de Panamá, strengthening training capacity (JICA, 1998; Kobayashi S., 2000: 314-315). This embodied Japan’s policy of stabilization through technical and educational cooperation rather than military power, contributing concretely to post-transfer human resource development.
32The 1990s reconstruction period was marked by institutional constraints stemming from structural adjustment and the canal transfer, alongside an unstable geopolitical balance involving Taiwan diplomacy, Chinese port investments, and waning U.S. influence. Japan’s efforts in human resource development and institutional strengthening enhanced administrative capacity under these constraints, functioning as a stabilizing factor during the subsequent hegemonic vacuum.
33This section examines how Panama’s diplomacy evolved amid declining U.S. engagement and China’s rise. Entering the twenty-first century, China joined the WTO (World Trade Organization) in 2001. The 2008 global financial crisis weakened U.S. regional influence, while China intensified economic diplomacy, joining the Inter-American Development Bank in 2009 and rapidly expanding its footprint in Latin America—challenging the U.S.-led order.
34Initially, Washington viewed China’s advance in Panama with cautious optimism. In 2002, the AIT (American Institute in Taiwan)—effectively the U.S. mission to Taiwan—reported that Latin American countries were unlikely to switch diplomatic recognition from Taiwan to China. While acknowledging Beijing’s sophisticated lobbying to constrain Taiwan’s diplomatic presence, the report emphasized Taiwan’s active multilateral engagement with six Central American states. Hutchison Whampoa’s investments in Panama were deemed unlikely to disrupt Panama–Taiwan relations, though the country’s investment climate was noted as a constraint for Taiwanese firms (DOS, AIT to DOS, 2002).
35As deputy chief of mission (1999-2002), Frederick A. Becker recalls, after the canal transfer “nobody wanted to hear about any problems in that country” and Washington assumed that “once the canal treaty issues had been settled, […] policymakers would not have to worry about Panama”. Yet, as he notes, “Panama was a center for alien smuggling from the Andean countries, from the Middle East and Asia”, with organized rings moving “large numbers of mainland Chinese” through the isthmus into the U.S. After 9/11, anti-money-laundering measures and regulatory cooperation became Treasury-led priorities, relegating Panama to the periphery of U.S. security policy (Becker F., 2004: 167-168).
36By 2011, as United States Agency for International Development (USAID) Mission Director Mark Silverman recalls, Washington had decided to close several country missions and “Panama was on the list”. Although Silverman understood that “Panama was a middle-income country” with “significant revenue from the Panama Canal”, he noted that the U.S. government still had concerns “ranging from the environment to the Chinese role with the canal and with gang activity and security issues”. Despite these factors, the decision to phase out the mission moved forward (Silverman M., 2023: 83).
37Between 2010 and 2016, Panama undertook the construction of a third set of locks at a site excavated during World War II. However, cost overruns led a U.S.–Japan consortium to lose the project to a European-led group. While the canal expansion aimed to reinforce Panama’s role as a U.S. trade hub, critics noted that it also responded to booming demand from the Far East—mainly China—and raised concerns that it would strengthen China’s logistical capacity (Guevara C., 2011: 186, 197, 203).
38China, meanwhile, deepened its penetration through ports and logistics. In 2015, Cheung Kong acquired Hutchison Whampoa, reorganizing it as CK Hutchison Holdings. Such investments are viewed as part of a broader maritime strategy encompassing Djibouti’s naval base and alternative routes to the Malacca Strait via Thailand (Chavez Rodriguez Y. and M. Mohlin, 2023). Ellis argues that firms like COSCO and Hutchison Whampoa, while ostensibly commercial in peacetime, provide latent operational access in wartime, expanding both military and commercial influence (Ellis E., 2025). Moreover, China never signed the 1977 Neutrality Treaty and thus bears no legal obligation to uphold canal neutrality (Chavez Rodriguez Y. and M. Mohlin, 2023: 478–479).
39Panama long maintained diplomatic ties with Taiwan, but its stance shifted gradually in the twenty-first century. In 2001, Foreign Minister José Miguel Alemán emphasized peaceful dispute resolution in his UN General Assembly address, citing examples such as the self-determination of the Sahrawi people, Argentina’s claim to the Malvinas/Falklands, and Taiwan’s representation in the UN system—reflecting Panama’s commitment to dialogue under international law (BRC, JMA, 2001). By 2010, however, Panamanian diplomacy had increasingly prioritized economic relations. In his address to the UN General Assembly, President Ricardo Martinelli referenced “the Straits of China” and emphasized trade and canal-centered economic cooperation (Martinelli, 2010), marking a departure from explicit pro-Taiwan rhetoric toward a more pragmatic posture conducive to engagement with Beijing.
- 1 Switching diplomatic recognition from Taiwan to China is not merely a matter of economic rationalit (...)
40China’s assertiveness intensified after Xi Jinping assumed power in 2013, and Taiwan elected President Tsai Ing-wen in 2016. Beijing foregrounded the One-China policy, accelerating Taiwan’s diplomatic isolation.1 This triggered a wave of recognition switches in Central America, beginning with Panama. Although Tsai attended the canal expansion ceremony in 2016, Panama abruptly severed ties with Taiwan the following year. Miyake attributes this move to a preemptive signal anticipating a U.S. policy shift under the Trump administration and to domestic political calculations ahead of Communist Party Congresses (Miyake Y., 2025: 497-498).
41The administrations of Juan Carlos Varela (2014-2019) and Laurentino Cortizo (2019-2024) signed roughly fifty agreements, primarily focused on ports, logistics, and transport infrastructure. Nevertheless, concerns persisted over loan conditions, debt-trap risks, dependence on foreign firms, and migration—underscoring that while China’s strategic interests were clear, Panama’s benefits remained ambiguous (Martín R. and G. Boscan, 2023: 245-254). China’s initial attempt to locate its embassy along the canal—a symbolic site of post-U.S. sovereignty—provoked backlash rooted in national sentiment and strategic anxiety (Herrera L. et al., 2021: 38).
42In the twenty-first century, Panamanian diplomacy was reconfigured under dual pressures: a hegemonic vacuum created by declining U.S. engagement and China’s strategic penetration. Beijing leveraged Taiwan’s diplomatic isolation, embedding ports and logistics within its maritime strategy and amplifying commercial influence. The U.S., by contrast, confined its response to narrow security concerns, lacking a comprehensive counterstrategy.
43Japan, in turn, continued a public-goods-oriented approach through yen loans, technical cooperation, and human resource development—functioning as a stabilizing factor in institutional capacity-building, urban transport (Metro Line 3), and environmental and health sectors. Metro Line 3, financed through JICA’s third yen-loan agreement signed in February 2025, aims to “enhance urban transportation efficiency, cut CO₂ emissions, and thereby support Panama’s sustainable economic development” (JICA, 2024). The Ministry of Foreign Affairs emphasizes that Japan’s development cooperation is grounded in inclusiveness, transparency, and fairness, guided by the concept of “human security” and the pursuit of “quality growth”—ensuring that development is inclusive, sustainable, and resilient (MOFA, 2023) even as Panama attains middle-income status.
44In sum, the hegemonic vacuum has triggered new competition, expanding Panama’s diplomatic options while exposing persistent domestic vulnerabilities—ranging from governance deficits to environmental concerns—that compel Panama to frame diplomacy not merely as an exercise in choice but as a strategy for reconciling external pressures with internal development needs.
45This section analyzes Panama’s diplomatic options amid a hegemonic vacuum and U.S.–China rivalry, focusing on their interplay with domestic governance challenges. It further examines how Japan’s public-goods-oriented approach functions as an alternative to binary U.S.–China rivalry.
46The effectiveness of diplomatic choices is conditioned by domestic governance fragility. Some scholars argue that Panama maximizes national interests through diplomatic agility (Chen X. and Q. Qiang, 2024), while others contend that Latin American states are increasingly enmeshed in China’s networks, facing structural limits and lacking the capacity to disengage (Mendez A. and C. Alden, 2021).
47Panama’s Corruption Perceptions Index (CPI) ranked 114th of 180 countries in 2024, with a score of 33—indicative of systemic weaknesses (Transparency International, 2024). The U.S. Department of State’s Investment Climate Statement identifies judicial non-independence, contract enforcement uncertainty, corruption, and lack of transparency as major risks, warning that high unemployment and income inequality exacerbate social unrest and undermine investment stability (U.S. Dept. of State ICS, 2024). Nonetheless, Panama’s 2025 OECD (Organisation for Economic Co-operation and Development) accession bid signals a commitment to transparency and rule-based governance.
48A salient example is the litigation over environmental rights in the copper mining sector, illustrating how large-scale resource projects can be destabilized by fragile domestic conditions. The Minera Panamá mine, launched in 2019, is majority-owned by Canada’s First Quantum Minerals, with China’s Jiangxi Copper holding approximately 18.5%. Roughly 60% of its copper output is exported to China, which became Panama’s largest export market in 2020 (Embajada del Japón en Panamá, n.d.; Oguchi, T. and S. Sato, 2025). Opposition from indigenous groups and environmental organizations persisted even before operations began. The 1997 mining concession law was declared unconstitutional in 2017, and protests over its renewal intensified in 2023, culminating in a Supreme Court ruling that invalidated the contract and halted operations. Ellis (2025) views Chinese economic dominance in strategic infrastructure—including mining—as a critical security risk.
49In 2025, President Trump repeatedly asserted in his inaugural and congressional addresses that the U.S. would “take back the Panama Canal”, alleging Chinese control—despite the canal being managed by the Panama Canal Authority. This rhetoric escalated into diplomatic pressure, with visits by the U.S. Secretary of State and Secretary of Defense urging Panama to curtail Chinese influence. Hutchison Whampoa’s long-standing operation of ports at both ends of the canal (Balboa and Cristóbal) was framed as “Chinese control”, prompting negotiations for acquisition by a consortium led by U.S.-based BlackRock. Yet legal audits and Chinese resistance have left the outcome uncertain. These developments exemplify how coercive signaling and economic leverage in U.S.–China competition shape Panama’s diplomacy over strategic assets.
- 2 This account is informed by the author’s direct participation in the official reception held in Tok (...)
50In contrast to U.S. security-centric coercion and China’s unilateral penetration, Japan offers a qualitative alternative. During his official visit to Japan in September 2025, President José Raúl Mulino expressed deep appreciation for JICA’s support, highlighting progress in technical capacity, institutional modernization, and infrastructure development. He also underscored advances in education, health, and environmental sustainability, reaffirming Panama’s commitment to deepening cooperation with Japan in port innovation, operational digitalization, energy efficiency, and maritime human resource training.2 However, yen depreciation and domestic opinion suggest that Japan’s ODA will also face constraints.
51Panama’s diplomacy in the era of multipolar competition thus unfolds between three distinct logics: U.S. coercive signaling and security bias, China’s economic penetration and strategic risk, and Japan’s public-goods-oriented approach. This case demonstrates that smaller states can design alternative pathways by leveraging public goods diplomacy to balance external pressures and domestic development priorities.
52This study draws on official documents and oral histories to illuminate how Panama seeks to address external pressures and domestic constraints under conditions of hegemonic vacuum. It also examines how Japan’s public-goods-oriented cooperation functioned as a viable option. In answering the research questions posed in the introduction, this analysis underscores that Panama’s diplomatic choices cannot be understood through isolated contemporary events alone; they require a historically anchored, micro-level perspective on multilateral interaction.
53Three key findings emerge:
First, historical continuity: Multilateral diplomacy during the Torrijos era laid the foundation for Panama’s adaptive strategies under shifting hegemonic structures, creating the conditions for policy space expansion in today’s multipolar competition. Torrijos skillfully mobilized international opinion through negotiations with the United States, Yugoslavia, and Japan, framing canal restitution as a universal cause. This process exemplifies diplomacy as a mechanism for reconciling ideals with pragmatic constraints.
54Second, the interplay of external pressures and domestic factors: U.S. security-centric coercion, China’s state–enterprise penetration model, and Panama’s governance vulnerabilities—manifested in corruption and environmental litigation—shaped the feasibility of diplomatic strategies. Small-state diplomacy must therefore be understood not merely as normative positioning but as contingent upon institutional conditions. Panama’s oscillation between short-term calculations and structural constraints further illustrates that agency is conditioned by both domestic fragility and external leverage. This underscores that democracy alone is insufficient without institutionalization—judicial independence, anti-corruption mechanisms, contract enforcement, and environmental regulation. Without these, external pressures and domestic corruption converge, undermining public interest.
55Third, Japan’s role: Postwar Japanese diplomacy, grounded in the pacifist constitution and the Yoshida Doctrine as a treaty ally of the U.S., consistently prioritized economic cooperation over military power, sustaining a public-goods provision model encompassing infrastructure, human resource development, and institutional capacity-building. Bureaucratic stability facilitated the transition from personalized negotiations to institutionalized frameworks, while Japanese diplomats exercised meticulous caution to avoid being perceived as “economic animals”, eschewing overt political gestures in favor of trust-building. Although the Second Canal Project never materialized, its trajectory exposed the limits of personality-driven diplomacy and catalyzed bureaucratic succession, laying the groundwork for long-term bilateral engagement. As USAID faces dismantlement and integration into the State Department in 2025, expectations for Japan’s role may rise. However, Japan faces democratic constraints—fiscal limits, public accountability, and institutional checks that prevent unilateral decisions—reflecting the domestic political context.
56Taken together, this case illuminates the dynamics of small-state diplomacy under conditions of hegemonic rivalry and multipolar competition. U.S. responses have often been spectacular but largely short-term and security-centric; China’s networked penetration accumulates gradually but is not uniformly sustainable; and Japan, while sharing an order-preserving ethos, widens policy space through a non-coercive, public-goods method that emphasizes trust-building and institutions but faces democratic constraints. For Panama, effective diplomacy should not rely on reactive short-term maneuvers but combine temporal depth with multilateral breadth—revitalizing a historically grounded, multilateral framework based on shared principles and values, as exemplified by Torrijos’s diplomacy. Future research should extend this inquiry through comparative analysis across Latin American states, recognizing regional heterogeneity, and explore Panama’s multi-regional linkages—including Europe and the Middle East—to identify historical patterns of small-state diplomacy under conditions of hegemonic rivalry.
