Panama Folds as Australia Ducks for Cover

The Trump administration is getting down to business weeding out the seeds of the Chinese Communist Party’s influence in strategic footholds internationally. In recent days, the future of the Panama Canal has seemingly been secured—calling time on the creep of CCP influence. 

In securing and facilitating maritime trade between the Atlantic and Pacific Oceans, the strategic value of the Panama Canal is obvious. The bilateral relationship between Panama and the U.S. began in 1903, and, while of course there have been various disruptions, it has been altogether oriented toward securing the free flow of maritime trade (a vital national interest for Washington) via the canal. It is a relationship that turns on permanent neutrality of Panama. 

The U.S. and Panama have enjoyed deep economic engagement, with American exports accounting for 25 percent of all goods and services imported by Panama, including a staggering 60 percent of Panama’s imported food. The U.S. res the central customer of the Panama Canal; over 70 percent of all transits head to or from American ports. 

The U.S. is also the leading source of foreign direct investment in Panama. According to the CRS, China leads (slightly) the U.S. as Panama’s key trading partner, with Beijing accounting for 17.2 percent of total merchandise trade, compared to Washington’s 16.1 percent. 

The CCP Belt and Road Initiative (BRI) has worked to degrade the U.S-Panama relationship, eroding the stability of American strategic interests in the Panama Canal along with it. In 2017, Panama became the first country in Latin America to sign on the dotted line for the BRI. This agreement allowed the CCP to bed down and expand influence for its long-term strategic benefit. Strings are most definitely attached. 

Trump called time on this, and in a matter of days Panama’s government agreed it could not have its cake and eat it too. Since 1997, a Chinese firm has operated two of the five ports in the Panama Canal. These happen to be the ports at both ends of the canal. Already, Panama’s supreme court has received a lawsuit to cancel the Hong Kong–based firm’s contract. 

Coupled with cancelling Panama’s BRI partnership, and potentially allowing free transit for American military vessels, these efforts might be enough to rebalance U.S. power in the immediate region. Of course, this invites potential international arbitration brought by China and poses questions around the neutrality of the Panama Canal. We will wait and see.

Events unfolding rapidly in Panama have direct relevance for Australia, not least the U.S.-Australia alliance. The U.S. is among Australia’s largest sources of foreign direct investment, and Washington and Canberra celebrate a military-strategic “ride or die” bromance. The U.S. increasingly looks to the Australian continent as a forward base for Indo-Pacific operations. Yet it is China that keeps Australia afloat. 

China is Australia’s largest trade partner, accounting for more than a quarter of Australian international trade. In 2023, this trade increased by almost 10 percent. Australia’s labour government has effectively worked to “stabilize” ties with Beijing. Bilateral relations for the decade prior had been dire, from all out-trade war to Australia’s domestic security fabric fraying over the intent of one state (Victoria) to sign up to the BRI. Thwarted by Canberra, the BRI deal is dead in the water. Yet the CCP’s tentacles re. 

Australian lobsters and wine are flowing again to Beijing, and there are various instances of Canberra kowtowing to China. As illustrated by a cyber-attack attributed to a group in China, Australian policy increasingly appears to be to publish a short statement and move right along.

Canberra continues to evade American ire over its China relationship. Under Trump 2.0, this could change. In keeping with strategic U.S. port challenges, one must consider the Port of Darwin debacle. The Port of Darwin, in Australia’s Northern Territory, is Canberra’s nearest port to Asia. In the Australian Government’s own words, it is a critical piece of infrastructure. 

In 2015, the Landbridge Group—a Chinese company—was awarded a 99-year lease to operate the Port of Darwin. The Landbridge Group provides an upbeat CCP-esque mantra encapsulated in its vision statement for the Port of Darwin: “Partnering in growth, connecting people and supporting potential”. 

Fears that said growth, connections and potential would have Chinese characteristics led to a 2021 Australian defence department security assessment into the lease of Port of Darwin to Landbridge Group. The findings (apparently) concluded there were insufficient national security grounds to overturn the lease. 

Enduring Australian intelligence and defense concerns led to the new Australian government’s announcement in 2022 that it would review the circumstances surrounding the Port of Darwin lease. In a public statement by stealth published late one Friday evening in 2023, the government announced that there is a “robust” system in place to manage risks, extant monitoring mechanisms of said risks are “sufficient” and ongoing. It concluded that “it was not necessary to vary or cancel the lease”.

Pre-dating the 2015 lease is the 2011 agreement struck by Australia and the U.S. known as Marine Rotational Force–Darwin (MRF-D). For six months every year, U.S. marines arrive in Darwin on rotation to train alongside the Australian Defence Force and other allies and partners. MRF-D serves to strengthen interoperability between Australia and U.S. forces, “advance our shared goals, demonstrate the… endurance of [the] alliance, and contribute to regional security.” 

MRF-D res a “key touchpoint of the Australia-U.S. security Alliance.” It is therefore no wonder the nine-mile drive from MRF-D’s location at RAAF Base Darwin to Landbridge Group’s Port of Darwin operations office is so problematic. Kept under wraps by Australian officials are the plans to keep Australia’s two mates apart in Darwin. With China elbowing in on the Port of Darwin, it has long been rumored the U.S. would secure a private port in the area (Glyde Point), about 25 miles away from Darwin’s current port. 

The Port of Darwin is a strategic asset in the Indo-Pacific great game. Australia’s Prime Minister Anthony Albanese criticized the lease agreement while in opposition, but, in power, his fears appear to have evaporated. Australian leadership’s language around China is increasingly muted. For instance, an Australian citizen once “arbitrarily detained” in China and facing the death penalty is now simply in “detention.” 

Handing the CCP Australia’s single strategic northern port for a century and refusing to walk back the decision due to fear of Beijing’s economic wrath is business as usual for Canberra. Even in the absence of a BRI memorandum of understanding, Australia’s Port of Darwin problem has obvious BRI characteristics. 

Landbridge Group celebrates online its “plans to grow” Darwin Port by “developing the infrastructure to meet future customer needs…[providing] opportunity to increase trade with Asia through the company’s extensive business networks in the region”. 

Another fan of 99-year leases in the Indo-Pacific region appears to be the British government, which is intent on handing the Chagos Islands (in the Indian Ocean) over to Mauritius. The idea that any comfort can be gleaned from the provision of a 99-year lease to the U.S. for the strategic foothold that is Diego Garcia is beside the point. China has fervently worked to shore up its standing with Mauritius.

The South Pacific also finds itself on the receiving end of CCP effort and affection. The Solomon Islands and Papua New Guinea are balancing Chinese capital and attention with long-held political commitments to the West.  Washington can’t be everywhere, funding everything, thwarting CCP creep in every corner of the globe. Nor should it be. Inked in agreements like the ANZUS Treaty, Australia has a responsibility and a commitment to take the lead in the South Pacific to share the security burden and take a load off Washington. 

Australia’s neighborhood is crowded by a deluge of ticking time bombs—the culmination of years of CCP inroads and erosion of strategic infrastructure and governance throughout the region. Canberra may point to Trump’s Panama Canal triumph and celebrate Washington’s intent to make its partners and allies pay their fair share, but this does not exempt Australia from making its own tough decisions. 

Lest Canberra be forced to “pick” between the largest economic partner (China) and its security provider (the U.S.), Australia should start thinking outside the box. Decisions to hand strategic infrastructure that provides regional uplift, and not least hosts U.S. marines, to the CCP is likely to draw attention from the Trump administration. 

Australia’s value proposition is its strategic geography. Affording a “beachhead” for U.S. forces and allies to secure and stabilize the Indo-Pacific. It would appear that the Australian government has no incentive, let alone interest, in diverging from its policy of self-sanctioning when it comes to China. 

When (not if) Trump’s team interrogates Australia’s value proposition, beyond political taglines of “mateship,” Canberra must be ready to respond. Offering Washington a 99-year lease of Australia’s Coco-Keeling Islands or of Christmas Island, both located in the Indian Ocean, would be an apt place to start. 

Australia’s expenditure on defense is currently 2 percent of GDP and forecasted to reach a height of 2.4 percent by 2028, less than half of Trump’s 5 percent benchmark for NATO partners.  Some tough conversations are about to occur, and something tells me Australia’s “she’ll be right” attitude will no longer suffice.