Explainer: Why is Trump threatening to take over the Panama Canal?
28/01/2025 11:00
(New throughout)
By Sarah Morland, Marianna Parraga
Jan 28 (Reuters) - Newly inaugurated U.S. 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 U.S. 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 U.S.
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 0001.HK , 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 U.S. 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 U.S.
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. U.S.
investment bank JPMorgan downgraded its recommendation on the
country's bonds over threats to the canal, a key source of
national income.
U.S. 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 U.S.-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 U.S.
border.
(Reporting by Sarah Morland and Alejandra Ceballos in Mexico
City, Marianna Parraga in Houston and Elida Moreno in Panama
City; Editing by Rosalba O'Brien)
((mailto:sarah.morland@thomsonreuters.com;))