Why Trump sees a Chinese threat at the Panama Canal, and locals don’t

President-elect Donald Trump’s reasons for wanting control of the Panama Canal can be found at either end of the interoceanic waterway.

Every day, dozens of cargo ships pass by blue cranes at a port near the Pacific Ocean entrance, the towering skyline of Panama City visible across the horizon. About eight hours later, they drift past another terminal stacked with containers as they exit into the Atlantic.

These facilities are run by a giant Hong Kong port operator, Hutchison Whampoa. And that is the crux of the problem for the incoming Trump administration, which sees the Chinese infrastructure that has been built up around the canal in the past three decades as a national-security threat.

“In reality, a foreign power today possesses through their companies, which we know are not independent, the ability to turn the canal into a chokepoint in a moment of conflict,” Sen. Marco Rubio, the nominee for secretary of state, said at his confirmation hearing.

There are other China-backed projects in Panama that include a canal bridge, a new subway line, a cruise-ship terminal, a convention center and a wind-energy farm. Incoming Trump administration officials say it all amounts to a violation of the U.S.-Panama treaties that required the canal to remain neutral when Washington turned over the American-built canal to Panama in 1999. Trump hasn’t ruled out using military force to take the canal back.

Panamanian officials, and several former U.S. military officials, say those Chinese facilities don’t represent a military threat, breach the canal’s neutrality or even show that Panama is coming under Beijing’s influence.

This tiny Central American country loves baseball, uses the U.S. dollar as its currency and is the most pro-Washington nation in the region. Its president, José Raúl Mulino, is a center-right politician who wants to work with the U.S. on migration and security issues.

China would be hard-pressed to convert a busy container port terminal for military use, said Joe Reeder, a former U.S. Army undersecretary now on the Panama Canal’s international advisory board.

“No one who knows anything about military technology or tactics would view container ports around the world as a national-security threat,” Reeder said.

Wesley Clark, the retired U.S. Army general and former NATO commander, oversaw the military’s Southern Command in the 1990s, and moved its headquarters to Miami from Panama. “Nothing that China does is ever purely commercial,” he said. But “Panama is close and we know it well. If China were to seek military advantage there, we could take rapid and decisive action.”

Clark and authorities here said a better idea is convincing American companies to invest in Panama. Hutchison—a private company controlled by the family of billionaire investor Li Ka-shing—outbid Mitsubishi of Japan and U.S.-based Bechtel to run the ports in 1996.

A Chinese Foreign Ministry spokesman said: “China will, as always, respect Panama’s sovereignty over the canal and recognize the canal as a permanently neutral international waterway.”

A Trump spokeswoman said the president-elect “is 100% correct about the threat that China’s growing influence over the Panama Canal poses to America’s national-security and economic interests.”

Trump isn’t alone in his concerns. Republicans criticized President Jimmy Carter for giving up a strategic asset with a 1977 treaty. When Hutchison took over, Reagan-era defense secretary Caspar Weinberger said China could gain an “enormously important intelligence platform.” Hutchison denied that. The Pentagon said then that it didn’t consider Hutchison’s operation a security threat.

In 2023, then-Southern Command chief Gen. Laura Richardson said there were five Chinese state-owned enterprises along the canal that could repurpose their facilities for military use. A military spokesman didn’t respond to requests to identify those entities.

Chinese national-security laws can require the country’s private entities and individuals to support state policy, a blurring of civilian-military roles that discomforts many in Washington.

About 4% of global trade passes through the canal. More than 70% of the traffic is bound for or coming from the U.S. American oil and gas tankers shuttle fuel to the Pacific, while vessels loaded with Peruvian asparagus, Chilean wine and Ecuadorean bananas cut through en route to the U.S. East Coast.

The canal is a symbol of national identity here and a source of wealth. About half its $5 billion in annual revenue goes to government coffers. When it took over, Panama invested more than $5 billion to build larger locks, allowing more vessels to pass and triggering investments at U.S. ports that got busier as a result. Economists say the canal is an exception: a well-managed state company in a region known for corruption.

The 1977 treaty and Panama’s constitution include neutrality principles to shield canal operations from interference from foreign powers and from Panama’s central government.

The U.S. remains Panama’s top investor and trading partner, even as Chinese investment has displaced the U.S. elsewhere in Latin America as the dominant economic force.

Canal data show that Chinese cargo ranks a distant second to the U.S., accounting for less than 22% of goods transiting the waterway. U.S. investment in Panama stood at almost $13 billion in 2023, dwarfing the $515 million from China, according to Panama’s government. Chinese military vessels haven’t crossed the canal in almost a decade.

Trump says Panama charges U.S. vessels exorbitant rates, which Panamanian authorities deny. A vessel’s size, type and cargo determine its toll, which averages about $750,000 per crossing. U.S. Navy vessels get priority, while commercial ships sometimes face waits of up to 10 days.

“China has no involvement whatsoever in our operations,” said canal administrator Ricaurte Vásquez. “We cannot discriminate against the Chinese, or the Americans, or anyone else.”

Canal chief Ricaurte Vásquez at the administration building in Panama City.

Panama is vulnerable to Trump’s pressure precisely because of its close ties to the U.S. It has no central bank or armed forces. The U.S. has intervened here before, as recently as 1989, when troops invaded to overthrow then-dictator Manuel Noriega.

Under the neutrality treaty, the U.S. has the right to act if the canal faces military or hostile threats against the peaceful passage of ships. Retired Gen. Barry McCaffrey, the former U.S. drug czar who once led the Southern Command, said a military takeover of the canal today would be illegal, spark outrage across Latin America and require U.S. troops to occupy the country.

“We would sound like it was the 1850s,” he said. “If you’re a foreign illegal power, how would we operate the canal without Panamanians?”

China is increasingly a visible part of society in Panama, which was the first Latin American nation to join Beijing’s Belt and Road Initiative in 2017. Panama is home to a Chinese diaspora of about 200,000, the largest Chinese diaspora community in Central America. Chinese-run bodegas are neighborhood fixtures, while dim sum is a beloved treat in the capital.

Alonso Illueca, who tracks China’s activities in Panama at the University of Santa María La Antigua, said the Panamanian government isn’t prepared to counter leverage from Beijing as its economic interests here grow.

“No one is saying there should be no China-Panama relations,” Illueca said. “But this is about avoiding a strategic dependence on China.”

For now, American influence holds sway. After Panama cut diplomatic ties with Taiwan, Beijing proposed building an embassy near the canal’s Pacific entrance on an abandoned U.S. base. Then-U.S. Ambassador to Panama John Feeley said he complained to the government here.

“The symbolic effect of seeing the Chinese flag at the mouth of the canal would have been poorly received by the U.S., Panama’s traditional friend,” Feeley said. “They canned that.”

Old Chinatown in Panama City. The country is home to a Chinese diaspora community of about 200,000, the largest Chinese diaspora community in Central America.

José de Córdoba, Costas Paris and James T. Areddy contributed to this article.

Write to Santiago Pérez at santiago.perez@wsj.com and Kejal Vyas at kejal.vyas@wsj.com