Latin Analysis: Is the Panama Canal in Danger?
Beata Whitehead
Bridging the Atlantic and Pacific Oceans, the Panama Canal is widely thought to power global trade. In recent weeks, Donald Trump has reignited a historic debate over ownership of the Panama Canal, accusing Panama of “ceding its operation to China”, despite Panama’s denials. However, this is not the only current issue concerning the Canal; environmental changes are endangering the future viability of this strategically important waterway, thus, the United States may be embarking on a mission to regain a waterway that could be rendered useless in the future.
Who built the Panama Canal?
Following the Hay-Bunau-Varilla Treaty between Panama and the United States, the United States began construction of a canal through the Central American state. There has been significant debate over the validity of the treaty, given that Panama’s negotiators did not technically have the formal consent of the central government to come to an agreement. Despite this, the project was completed in 1914. It cost around $375,000,000, making it “the single most expensive construction project in United States history to that time”. Human costs were also tragically high, with 5,609 deaths, both from accidents and disease during the US building period. However, the total death toll will never be known, given that the only fatalities recorded during French construction efforts were those that died in hospitals.
How important is the Panama Canal?
The Panama Canal is vital for international trade, due to its geographical links between the Americas and Asia, offering shorter travel routes and saving transporters billions of dollars. After the 2016 expansion, the Panama Canal has recorded a yearly number of “nearly 14,000 transits, a value equal to 6 percent of global trade.” Often considered a “barometer of world trade”, the waterway serves “more than 144 maritime routes connecting 160 countries and reaching some 1,700 ports globally”, and is key for facilitating efficient trade. The Suez Canal – another artificial strategically important waterway- has a significantly higher capacity than the Panama Canal, but often pales in comparison.
The United States is still the Panama Canal’s top user, with around 40 percent of all U.S. container traffic crossing the canal every year. Japan, South Korea, and Chile are also major users of the Panama Canal, and China’s involvement has increased significantly over the past few years. However, it cannot be underestimated how much economic power the canal provides to its home government of Panama, having become a key pillar of its economy. In 2024, “the canal’s revenue stood at nearly $5 billion, which represents about 4 percent of the country’s GDP.”
Top 15 Users of Panama Canal (Long tons of cargo- millions)
Who really controls the Panama Canal?
The Panama Canal Authority has controlled the canal since 1999, when the waterway was given over from the United States. However, one key aspect of the original treaty between Panama and the US remained: the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal. This agreement – unlikely that which bestowed ownership to the USA- has no expiration date, referring to the “permanent neutrality of the Canal with fair access for all nations and nondiscriminatory tolls”. It also allows the United States to use military force in the zone should they feel that the neutrality of the Canal is under threat. This has undoubtably emboldened President Trump to threaten military action in Panama over China’s presence in the region, despite President José Raúl Mulino reassuring that there were “no Chinese in the canal”.
Nevertheless, China does carry out “about 95 percent of its international trade through sea lines”, and there has been a strengthening in Sino-Panamanian relations in recent years. The government of Panama established diplomatic relations with China in June 2017, “giving rise to the flow of new Chinese investments in a Canal revitalized with the expansion”. Panama broke its historic links with Taiwan, recognized Beijing’s government as the legitimate Chinese government, and was the first Latin American country to sign up for Beijing’s Belt and Road Initiative. In exchange, China proposed the construction of a high-speed rail line from Panama City to the Costa Rican border, and a new subway line in the capital, while developing Panama’s most modern container port yet. A Chinese company also won the contract to build a fourth bridge over the Canal, and in 2021, Hong Kong company CK Hutchison “won a 25-year extension of its controls over two ports at the canal’s entrance”. Despite not being a Chinese state-owned company, Beijing now more than ever has great power to influence private companies there.
“China’s running the Panama Canal. That was not given to China, that was given to Panama- foolishly- but they violated the agreement, and we’re going to take it back, or something very powerful is going to happen” — Donald Trump
During a recent visit to Panama City, U.S. Secretary of State Marco Rubio warned that Washington will not hesitate to take action if Panama does not distance itself from China or deal with the presence of the Hong Kong-based company at ports, which supposedly violates the Panama Canal’s Neutrality Treaty. Mulino’s government has responded to these threats, promising to review some of the Chinese businesses with a presence in Panama, including CK Hutchison and their 25-year extension. Also, Panama has agreed not to renew their commitment to China’s Belt and Road initiative but made one thing abundantly clear; the sovereignty of the Panama Canal is not up for debate.
Environmental concerns:
An even greater threat to the future of the Panama Canal exists than that posed by politics. The reoccurrence of the ‘El Niño’ weather phenomenon- which triggers unusually warm surface temperatures in the Pacific Ocean- has had a significant impact on rainfall in Panama. This has contributed to a prolonged drought that began in early 2023, with rainfall being 43 percent lower than average in October of the same year, “the driest October since the 1950s”. In January 2024, water levels in Gatún Lake were the lowest ever recorded, almost 6 feet lower than the previous year. This has spelled trouble for the Panama Canal, given that each transit “requires around 52 million gallons of freshwater to lift and lower ships into and out of the canal”.
Following this, the Panama Canal Authority had to restrict the Canal’s traffic. Previously, the number of vessels traveling through the waterway daily sat between thirty-six to thirty-eight, but this dropped gradually down to just twenty-two ships a day in December 2023. Wetter conditions allowed traffic to slowly increase during 2024, but previous restrictions cost between $500 million and $700 million between October 2023 and September 2024. This also contributed to congestion and transit delays for canal users, affecting inflation and destabilizing global trade. To combat this, user fees were increased, igniting the tension between Trump’s administration and Panama.
Much of the conversation surrounding the Panama Canal has focused on its ownership and the consequences of this growing tension between the United States and Panama. Given the importance of this waterway for not just Panama’s economy but the entire trade network, it is understandably a concern for policymakers. However, one cannot ignore the environmental factors that are perhaps an even bigger threat to the future of the Panama Canal. No matter who ends up in charge of the waterway, if increasingly dry conditions persist, this crucial canal will become redundant.
