After threatening China, Canada and Mexico with tariffs, Donald Trump wants the U.S. to take back control of the Panama Canal. As if on cue, Trump’s son, Eric, posts an image on X that shows the U.S. adding Greenland, the Panama Canal and Canada to an Amazon online shopping cart. Trump is known to make off the cuff remarks but this was a well-calculated attempt to test the waters with Panama and at the same time put China on notice.
The Panama Canal is an 82-kilometre-long waterway in the Central American country of Panama, linking the Pacific and Atlantic Oceans. The U.S. built the Canal in 1914 and administered the territory surrounding the waterway for decades. In 1977, the U.S. agreed to return the Canal to Panama but it handed over full control of the Canal only on 31 December 1999. The Canal has since been administered by the Panamanian Government’s Panama Canal Authority. The fee it charges from ships and shipping companies is a key source of income for the country. It earned record revenues of nearly 5 billion dollars in 2023.
The Canal’s utility lies in the fact that it allows ships travelling from Asia and the western coast of the U.S. to the U.S. East Coast and beyond to avoid the long, hazardous route around the southern tip of South America. The Canal saves ships thousands of kilometres and weeks of travel around the stormy, icy, southern tip of South America. The journey for ships traveling from Los Angeles to New York is 13 thousand kilometres and 22 days shorter via the canal compared to travelling through the Strait of Magellan off Tierra del Fuego, an archipelago that embraces southern Chile and Argentina.
Nearly 15 thousand ships travel through the Panama Canal each year. They include cargo ships and military vessels. The main users of the Canal are the U.S., China, Japan and South Korea. In fact, China is the second-largest user of the Panama Canal after the U.S. This is where geopolitics and big power rivalry come in.
The Panama Canal is crucial for U.S. trade. 75 per cent of the cargo passing through the waterway in 2023 was either bound for or originated from the U.S. but it is equally important for another reason. In the event of a military conflict with China, the U.S. would need to use the Canal to move its ships and other assets to the Indo-Pacific but growing Chinese influence over governments and economies in Latin America could pose a problem for the U.S.
China has major economic investments in Panama. In 2017, Panama cut its ties with Taiwan and instead established diplomatic relations with China. What will Panama do if China goes to war with the U.S.?
China does not control or administer the Canal but a subsidiary of Hong Kong-based C.K. Hutchison Holdings manages two ports located on the canal’s Caribbean and Pacific entrances. Will the U.S. be able to use the Canal during a conflict with China over Taiwan?
The 1977 U.S. — Panama Treaty guarantees fair access to the Canal for all nations and non-discriminatory fees but will it be honoured?
It probably explains why Trump says in his Truth Social post that the U.S. has a vested interest in the secure, efficient and reliable operation of the Canal. Trump goes on to say that the U.S. would and will never let the Panama Canal fall into the wrong hands. He says the U.S. did not give the Canal for the benefit of others but merely as a token of co-operation between the U.S. and Panama and that the Canal was solely for Panama to manage, not China or anyone else. Trump’s other complaints are that the U.S. Navy and Commerce have been treated unfairly, the fees being charged by Panama are ridiculous, and this so-called rip-off needs to stop.
Incidentally, Trump’s threat coincided with the 35th anniversary of the U.S. invasion of Panama. 20 December is National Mourning Day in Panama. It is a public holiday that commemorates the Panamanians who died during the 1989 U.S. invasion of Panama. Panama’s President José Raúl Mulino Quintero was quick to push back. He said in a recorded statement released on X that every square metre of the Panama Canal and its adjacent areas belong to Panama and will continue to belong to Panama and that Panama’s sovereignty and independence are non-negotiable. He also defended the fee charged from ships and shipping companies using the Panama Canal, saying that the fees were carefully and transparently evaluated; they were not set on a whim. Mulino re-affirmed the country’s sovereignty over the Panama Canal in a statement signed alongside three former presidents of the country. Mexico’s President came out in support of Panama. Besides Mexico, the Bolivarian Alliance for the Peoples of Our America — People’s Trade Treaty said in a statement that its member states strongly reject the statements made by Trump. Mulino also rejected Trump’s allegation that Chinese soldiers were illegally operating the Canal.
All eyes are on 20 January when Trump will officially enter the White House. For now, Panama can only wait and watch.