Panama announced June 13 that it is breaking its long-standing diplomatic ties with Taiwan in favor of establishing relations with China—a clear political coup for Beijing. The Panamanian statement said it recognized "only one China" and considers Taiwan to be part of it. The change was spurred by an unavoidable fact: China is the second most important Panama Canal user after the United States. Last year it sent 38 million metric tons of cargo through the interoceanic waterway, accounting for 19% of its traffic. The announcement of the diplomatic switch also comes just as Chinese enterprises began building a container port, with natural gas terminals, in Panama's Colón province, on the Atlantic side of the canal. "I think Dominican Republic and Nicaragua will soon follow," Mexico's former ambassador to China, Jorge Guajardo, tweeted soon after the announcement.

Nicaragua has aspirations to build its own interoceanic canal—with construction overseen by a Hong Kong firm. This places it in a race with Panama, which is seeking to expand its own canal to accommodate modern super-tankers. But Chinese capital is involved in both projects. Nicaragua has already tentatively broached dropping Taipei for Beijing—despite a backlash from opponents of the canal project, who have at times adopted Sinophobic rhetoric.

China's fast-growing economic presence in Latin America, and the strategic criticality of the Central American isthmus, spell bad news for Taiwan. Until 2007, all Central American nations officially recognized Taiwan as the legitimate government of China. Then Costa Rica switched allegiance, dropping Taipei to recognize Beijing. Panama is the latest to switch sides, leaving Taiwan with about 20 allies wordlwide. (Channel News Asia, June 14; BBC News, June 13)

If the number continues to dwindle, Taiwan could be reduced to the ranks of the world's "phantom republics." The obvious solution is abandoning the "One China" fiction and recognizing Taiwan and China as the two countries they really are. Ironically, Taipei's "One China" posture began as a bulwark of Cold War anti-communism, but is maintained today chiefly to avoid antagonizing Beijing—which views any move to make Tawain's de facto independence de jure as political heresy and an act of rebellion. So Taiwan, increasingly desperate for allies, is held hostage to a geopolitical game over a distant isthmus...