Panama Has Ditched Taiwan. Here's Why It Matters for America.

Pro-China supporters hold Chinese national flags in front of landmark building Taipei 101, outside the dinner venue of Sha Hailin, a member of Shanghai’s Communist Party standing committee, in Taipei, Taiwan.

America can prevent a Panama Canal crisis by supporting conventional deterrence in Taiwan.

Last week’s sudden announcement by Panamanian president Juan Carlos Varela that Panama would henceforth be shifting its diplomatic relations from Taiwan to mainland China was not entirely unexpected in Taipei. Tsai Ing-wen had deliberately avoided visiting the country during her visit to the region after Panamanian leaders had delayed the acceptance of Taiwan’s new ambassador there for more than six months. For Taipei, it was clear that the writing was on the wall. Varela’s decision to favor Beijing came as another hit for Taiwan after it lost two other allies in the past year.

So what lies behind the recent moves of Taiwan’s allies to recognize Beijing instead? Part of the story relates to Taiwanese president Tsai. Coming from the independence-minded Democratic Progressive Party, President Tsai’s decision not to affirm the 1992 Consensus (on One China) and her congratulatory telephone call to president-elect Donald Trump in December of last year were poorly received in Beijing. Shortly after the telephone call, one of Taiwan’s African allies, Sao Tome and Principe, suddenly announced that it was dumping Taipei in favor of Beijing. According to Zhang Baohui, an academic at Lingnan University in Hong Kong, the shift by the small African country indicated that “Beijing has a new Taiwan strategy: they’re going back to their confrontational style, and the truce with Taiwan over the past eight years is over.”

Given the fact that the United States sits astride this precarious status quo, any increase in Cross-Strait tensions directly impacts U.S. national interests. While the official U.S. policy is to support the “One China” policy and maintain close diplomatic and economic ties with China, it is also committed by domestic law to protecting Taiwan from unification-by-force. Regardless of their preferences, U.S. presidents are obliged by the Taiwan Relations Act of 1979 to protect Taiwan and supply it with adequate military arms. Panama’s decision to abandon Taiwan—and the general trend it represents—raises two very difficult questions for policymakers in Washington. First, what does Panama’s decision mean for control of the strategically important Panama Canal? After all, the Navy depends on the canal to shift vessels from the Atlantic to the Pacific Ocean—particularly if there was a Taiwan-related contingency. Second, what does Taiwan’s gradual diplomatic isolation portend for the tiny country and for the U.S. policy to defend it from mainland China. Is the policy sustainable, given the massive changes in economic and military power across the Taiwan Strait?

In answering the first question, American policymakers should take Panama’s decision seriously and would be unwise to dismiss its strategic repercussions. The canal has long had a deeply strategic aspect for the U.S. Navy, which uses the canal transit from the Atlantic theater to the Pacific theater. In case of a Taiwan contingency involving a Chinese attempt to invade the island, U.S. forces in the Atlantic would certainly attempt to transit using the canal. In a well-known article, How the United States Lost the Naval War of 2015, written by James Kraska in 2010, China uses its commercial control of the ports on either end of the canal to close off use to U.S. vessels. While much of Kraska’s article is set in a fictional universe, he draws many strategic elements from reality. Presently, a Chinese company CK Hutchison Holdings (formerly Huchison Whampoa) does own and operate the two Panamanian ports through its subsidiary Hutchison Ports. In 1996, a U.S. State Department cable alleged that Panama’s 1996 auction for the operating rights over the canal had been facilitated by a Chinese state-owned enterprise, the China Resources Enterprise, which gave $400 million to Hutchison Whampoa Limited to clinch the deal. Despite a bid that was fourth, behind a Kawasaki bid, a Bechtel bid and a M.I.T. bid, the Chinese won the deal and now have a twenty-five-year lease, with an automatic renewal for another twenty-five years.