IN 1978 PRESIDENT JIMMY CARTER said that returning control of the Panama Canal to the government of Panama would open global trade opportunities, reduce anti-American feeling in Latin America and boost his country’s prestige. It was an act, he said in a televised speech, “of a people who are still confident, still creative, still great.” Before he died on December 29th 2024, Carter may have heard Donald Trump strike a different tone towards his country’s ally. Ceding control of the canal was a “terrible thing to do”. Now Panama is “ripping off” American consumers with exorbitant transit fees, the incoming president told supporters in Arizona. Two weeks later he said that “Chinese soldiers” are operating the waterway and that he would not rule out taking control of it by force. Why might Mr Trump want to seize the Panama Canal?
When, in 1903, President Theodore Roosevelt secured the canal project, which had been abandoned by French engineers, he was motivated by security concerns. The American navy wanted to move its fleet between the Pacific and Atlantic oceans without rounding Latin America. In the early 20th century the navy designed its vessels to fit through the canal’s 305-metre-long locks. Under the Torrijos-Carter treaties of 1977, the waterway was to remain neutral and open to ships of all nations, and the United States had a responsibility to intervene militarily to protect that status.
But the canal didn’t become a major passageway for trade until the 21st century. In 2016 a larger set of locks opened, designed to accommodate bigger “Neopanamax” vessels that could carry more goods. In recent years around 5% of global maritime trade has passed through the canal, which is run by a Panamanian agency independent of government and provides $2.5bn in annual revenue to the government.
Mr Trump’s claim that Americans are being cheated has little justification. Fees are set according to demand. Typically a ship pays less than $400,000 to transit. The fees normally account for a modest 5% of a journey’s costs, according to Eddie Tapiero, a Panamanian economist. During droughts, when fewer ships can cross, they can bid against each other for a slot. In November 2023 a ship carrying liquefied natural gas stumped up a record $4m for a transit. American military vessels get to jump the queue. They have paid just $17m in transit fees in the past nine years, “budget dust” in the words of John Feeley, a former American ambassador to Panama.
IN 1978 PRESIDENT JIMMY CARTER said that returning control of the Panama Canal to the government of Panama would open global trade opportunities, reduce anti-American feeling in Latin America and boost his country’s prestige. It was an act, he said in a televised speech, “of a people who are still confident, still creative, still great.” Before he died on December 29th 2024, Carter may have heard Donald Trump strike a different tone towards his country’s ally. Ceding control of the canal was a “terrible thing to do”. Now Panama is “ripping off” American consumers with exorbitant transit fees, the incoming president told supporters in Arizona. Two weeks later he said that “Chinese soldiers” are operating the waterway and that he would not rule out taking control of it by force. Why might Mr Trump want to seize the Panama Canal?
Map: The Economist
When, in 1903, President Theodore Roosevelt secured the canal project, which had been abandoned by French engineers, he was motivated by security concerns. The American navy wanted to move its fleet between the Pacific and Atlantic oceans without rounding Latin America. In the early 20th century the navy designed its vessels to fit through the canal’s 305-metre-long locks. Under the Torrijos-Carter treaties of 1977, the waterway was to remain neutral and open to ships of all nations, and the United States had a responsibility to intervene militarily to protect that status.
But the canal didn’t become a major passageway for trade until the 21st century. In 2016 a larger set of locks opened, designed to accommodate bigger “Neopanamax” vessels that could carry more goods. In recent years around 5% of global maritime trade has passed through the canal, which is run by a Panamanian agency independent of government and provides $2.5bn in annual revenue to the government.
Mr Trump’s claim that Americans are being cheated has little justification. Fees are set according to demand. Typically a ship pays less than $400,000 to transit. The fees normally account for a modest 5% of a journey’s costs, according to Eddie Tapiero, a Panamanian economist. During droughts, when fewer ships can cross, they can bid against each other for a slot. In November 2023 a ship carrying liquefied natural gas stumped up a record $4m for a transit. American military vessels get to jump the queue. They have paid just $17m in transit fees in the past nine years, “budget dust” in the words of John Feeley, a former American ambassador to Panama.
If commercial fees are typically low and America’s navy already has cheap and preferential access, why is Mr Trump threatening to take the canal? The simplest answer may be that the president-elect is expressing geopolitical machismo, as he has with his proposal to take over Greenland. He may also want to press Panama to reduce Chinese influence in the country. China’s soldiers do not, contrary to Mr Trump’s claim, operate the canal, but Chinese diplomats and businessmen have clout in Panama. During Mr Trump’s first term as president Panama ended diplomatic relations with Taiwan and established them with the government in Beijing. That led to an acceleration of Chinese investment in big infrastructure projects in the country. Plans for a huge Chinese embassy at the mouth of the canal were scuppered by American pressure. But in 2021 Panama renewed for 25 years a major port concession held by a subsidiary of a Hong Kong-based firm.
José Raúl Mulino, Panama’s president, has attempted to patch up relations with America. One of his first acts after coming to power in July 2024 was to sign a deal to restrict irregular migration through the Darien Gap. The first contract for his flagship infrastructure project, a high-speed rail line, was awarded to an American firm. That may not satisfy Mr Trump, however. He may press Panama to further tighten controls on migration, to improve investment conditions for American firms or to take the side of the United States against China. It might be sufficient for Panama to open a special trade office with Taiwan, a move that would deter Chinese investments, thinks Nehamías Jaén Celada, a sinologist and former Panamanian diplomat. Or Mr Trump’s government could push Panama to sever diplomatic ties with Beijing altogether. Until Mr Trump takes office on January 20th, Mr Mulino says he will not comment. But he has assured Panamanians that “every square metre” of the canal belongs to their country.
