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Published : 28 Jan 2025, 08:47 PM
Newly inaugurated US President Donald Trump is pushing to "take back" the Panama Canal, the world's second busiest interoceanic waterway, spurring concerns that the United States could invade the Central American nation.
Trump argues that Panama has broken a pledge of neutrality made when the United States transferred the canal to Panama in 1999, falsely claiming that China is operating it.
The canal is operated by the Panama Canal Authority, an autonomous agency overseen by the Panamanian government.
WHY IS THE CANAL KEY FOR THE U.S?
The Panama Canal, an 82-km (51-mile) artificial waterway that connects the Pacific and Atlantic Oceans, saves ships thousands of miles and weeks of travel. Before it was built, ships had to make the long journey around the stormy tip of South America in order to travel by sea between the two oceans.
Over two-thirds of all cargo passing through the canal today originates from or is destined for the United States.
The US completed construction of the canal in the early 20th century, a project begun by France that cost over 25,000 workers' lives.
Following pressure from anti-colonial movements, the US signed treaties in 1977 granting Panama control and full sovereignty over the canal zone and guaranteeing its permanent neutrality. These took effect in 1999.
Between 2023 and 2024, a severe drought aggravated by climate change lowered the level of lakes feeding the canal, forcing its administrator to restrict transits and vessel draft, which increased costs and waiting times.
The passage restrictions were lifted late last year, but the waterway has not yet seen a full return of normal traffic as many shippers, especially bulk carriers and liquefied natural gas tankers, have continued taking alternative routes.
WHAT IS CHINA'S INVOLVEMENT?
In his inaugural address last week, Trump repeated accusations he made following his election victory that Panama has ceded control of the canal to China. He has also said Chinese troops are stationed at the canal, without providing evidence.
Both Panama's government and the Chinese government have rejected those assertions.
CK Hutchison Holdings, a Hong Kong-based company, has for more than two decades operated the ports of Balboa and Cristobal at the canal's Pacific and Atlantic entrances. The company is publicly listed and not financially tied to the Chinese government, though Hong Kong firms are subject to government oversight.
Private U.S. firm SSA Marine operates the MIT port on the Atlantic coast, Taiwan's Evergreen Group operates another Atlantic port known as CCT, and Singapore's PSA International operates the Rodman port on the Pacific coast, according to company and government websites.
China's economic influence has been growing in Latin America, fueling worries in Washington that the resource-rich region will tilt to Chinese interests rather than those of the United States.
Panamanian President Jose Raul Mulino has asserted that the canal is and will continue to be Panamanian.
Panama's authorities recently announced an audit on CK Hutchison's operated ports, saying they are investigating the firm's compliance with concession agreements and whether it is adequately reporting its revenues and state payments.
CK Hutchison's local arm did not respond to a Reuters request for comment, but said in a statement it has paid the state hundreds of millions of dollars during its concession and that its labor force is 99.9% Panamanian.
DISPUTE OVER TOLLS
Trump has repeatedly complained that the fees charged to ships to use the canal are too high, and has accused Panama of levying unfair tariffs on US goods.
"American ships are being severely overcharged and not treated fairly in any way and that includes the United States Navy," Trump said in the address.
Between the fiscal years ended in 2020 and 2023, the canal's toll revenue increased almost 26% to $3.35 billion, according to its annual reports. In the fiscal year ended last September, the canal offset less vessel traffic with a water surcharge, which it combined with slot auctions that rose to as much as $4 million per vessel.
The canal's fees are not differentiated by a ship's flag, country of origin, or of destination. The United States does not have a relevant commercial fleet under its flag, and US military ships enjoy priority of passage.
Mulino said the tariffs are carefully and transparently evaluated according to demand.
According to shipping experts and cargo movers, tolling fee increases have been applied in recent years by other key waterways amid demand spikes and geopolitical conflicts.
WHAT'S NEXT
Trump's threat is already impacting Panama's debt rating. US investment bank JPMorgan downgraded its recommendation on the country's bonds over threats to the canal, a key source of national income.
US Secretary of State Marco Rubio is scheduled to visit Panama between late January and early February, his first foreign visit in the post.
Immigration will be a focus of the trip.
Mulino, who took office last year, has taken a harder line on migration than his predecessor, agreeing to US-funded deportation flights from Panama and installing barbed wire at the Darien Gap, a dangerous jungle route many migrants take crossing on foot out of South America on their way to the US border.
