Why Trump is eyeing the Panama Canal

Just as Donald Trump was wrapping up his inauguration speech on Monday, Panama’s comptroller general (accountant-in-chief) pulled the trigger on a tweet showing a bus-load of suit-clad auditors arriving at ​​the local offices of Hutchison Ports. 

Of course, Intriguers will recall that Hutchison Ports is the Hong Kong-based firm managing container terminals near each end of the Panama Canal, prompting the new US president to claim in his inaugural address that China is effectively operating the canal.

Now before we dive into what’s going on here, it’s first worth donning our leather-elbow-patched tweed coats for some quick history. 

The US-built engineering marvel opened in 1914 after a decade of work costing ~$15B (today) — by connecting the Atlantic and Pacific Oceans, the 82km (51mi) Panama Canal cut weeks off shipping times and was a commercial and geopolitical game-changer.

Legally, it was based on a 1903 Panama-US treaty which gave the US permanent control over the canal zone in return for regular payments. That treaty came just two weeks after Panama seceded (with US help) from Colombia, which had rejected an earlier canal treaty.

Things really then started to turn in 1964 when rising resentment at the US presence gave birth to 13 years of US-Panama talks culminating in the Torrijos-Carter Treaties of 1977, which in turn kicked off the canal’s gradual transfer to Panama by the end of 1999.

The key loophole? One of the treaties (the ‘Neutrality Treaty’) gives the US the permanent right to defend the canal’s continued neutral service to ships of all nations. And in fact, that was one of Bush Sr’s justifications for then invading Panama in 1989.

Anyway, the Canal has since become critical to Panama,generating a cool $3.5bn profit in 2024. Panama has also invested billions to expand the canal, doubling marine traffic (and profit) along the way.

So, what’s Trump playing at here? The Panama Canal is the ultimate chokepoint and (at least in Trump’s view) that now creates vulnerabilities for the US, including:

1. Economic: 75% of all the canal’s cargo heads to or from US ports. To put it another way, the canal carries ~40% of all US container traffic. And that level of dependency realistically also makes this vulnerability…
2. Strategic: When the Spanish-American War forced the US to schlep warships the long way to Cuba, the idea of a canal shifted from a nice-to-have to a must-have. The canal then enabled the US to have a two-ocean navy, going on to win wars in the Atlantic and Pacific and become the world’s sole superpower. These days, a canal delay or blockage could hit its ability to respond to (say) a war over Taiwan.

But even ifyou accept those vulnerabilities, would Panama willingly exploit them? Not only is the current president very pro-US, but every single leader post-Noriega (the general ousted by Bush Sr) has been US-educated. And even if a hostile leader still emerged, Panama has no military (a treaty requirement) to back up any wild moves.

But it’s the word ‘willingly’ above that we imagine keeps Trump strategists awake. So then… what could an unwilling screw-over theoretically look like? Here are three options:

• Espionage: Hutchison’s Beijing links could leave it vulnerable to intelligence agency pressure to, say, share intel on — or even delay — US shipments
• Elite capture: China’s growing local presence since Panama ditched Taiwan in 2017 has left some fearing that Panama’s elites could lean East, shaping the canal’s operations, and
• Sabotage:Think of those ships ‘accidentally’ severing cables near Taiwan and the Baltic, or a more malicious version of the Ever Given that blocked the Suez in 2021. But think of it timed to cripple the Panama Canal and hamper any US response to a war.

Now, we’re not suggesting any of these scenarios will happen, or that even the mere possibility justifies (or not) Trump’s rhetoric. To boot, there’s still real debate around the extent to which China is actually making inroads in Panama. But either way, the US president just devoted two paragraphs to this very issue in his inaugural address.

As for Panama? The pro-US president (Mulino) is rejecting the idea of a US takeover, and told reporters in Davos to “be serious” when they asked again. Meanwhile, his diplomats just lodged a formal complaint at the UN, citing the UN Charter’s rejection of threats of force. And in what looks like an attempted signal of good faith, he’s also sending those suit-clad auditors into Hutchison to assure Washington that all’s still in order.

INTRIGUE’S TAKE

Zooming out a little, there’s a common thread across so many disparate issues right now: the Panama Canal, undersea cables, the SWIFT international payments system, the Arctic, cyberspace, outer space, and beyond. They’re all really meant to be global public goods — linking and serving broader mankind. But as global trust collapses and more players feel and fear their mis-use, more capitals are rushing to control them.

So what’s Trump’s play here? Maybe it’s another ‘threaten then negotiate’ move to cut canal transit fees and/or curb China’s Panama influence. Maybe. But if that’s the case, one risk is that US rivals will start quoting his lines back at him, whether it’s Putin seeking to justify his invasion of Ukraine, or Xi seeking to justify any move on Taiwan.

The other thing to note is that, in the face of any growing influence from China and others, many capitals want more US interest and presence. But they want it as a source of options and support. Not fear.

Also worth noting:

• Hutchison has a major presence at other critical waterways, including Egypt’s Suez Canal. It’s been operating in Panama since 1997, and signed another 25-year extension in 2021.
• A typical medium-sized ship now pays ~$250k to pass through the canal, while the largest ships pay double that. Transit fees are based on factors like a vessel’s type, size, and cargo.