President-elect Trump, claiming Panama is “ripping off” America with exorbitant canal fees, is threatening to seize the canal, The Hill reported on Sunday, December 22, 2024 (read story here).
The U.S. took over construction from France in 1904, completed the canal in 1914, and returned it to Panamanian control in 1999 under a treaty negotiated by President Carter in 1977. A project increasing capacity was completed at Panama’s expense in 2016.
It sounds like Trump would like to renege on the 1977 treaty, because he just called it “foolish.” What’s he going to do, invade Panama? (Spoiler alert: Don’t put it past him.) If he does, Panama has no army, only a national police force.
Panama, a relatively prosperous country, does make money from the canal but doesn’t have a monopoly; it has to compete with alternative shipping routes. At some point in the future, there could be a second canal in Central America, through Nicaragua, possibly funded by Chinese investors (see article here). At present, about 40% of container shipments from Asia bound for U.S. east coast ports pass through the canal because it’s faster than the Suez Canal.
In the most recent fiscal years for which data is available (Oct. 1, 2022 – Sep. 30, 2023), operating costs were about $800 million and Panama collected $3.3 billion in canal fees (see story here), so about 75% of what shippers pay is profit for Panama. This profit comprises about 2.8% of national income. So, while the canal is important, it’s a small part of Panama’s economy, which relies heavily on tourism and services.
Getting back to Trump, on Saturday he “called for a ‘secure’ Panama Canal, underscoring its importance to American national security and the economy” (quoted from story at top link). But nothing has changed about the security situation; and the 1977 treaty gives U.S. intervention rights if the canal is threatened (see story here). Moreover, U.S. warships use the canal for free.
So this is really about Trump trying to bully Panama into charging American commercial shippers lower rates. (Why? To offset the impact of his planned tariffs?) Kind of like a Mafia boss saying to a construction company, “You don’t really want to pave my driveway for $15,000, you want to pave it for $5,000.” And according to his words, at least, he appears willing to back it up with American soldiers’ blood.
Panama should tell him to take a hike. This is about (1) Panama’s sovereignty, (2) independence, and (3) commercial interests. Trump may think he can tell Congress what to do (how’s that going so far?), but we’ll see if he can tell Panama what to do. My bet is on Panama.
