Foreign Panama: Why the U.S. and China are vying for control over the canal that connects two oceans.

In his inaugural speech, Donald Trump expressed a desire to reclaim the Panama Canal for the United States. The following day, the Panamanian government filed a complaint with the UN Security Council. By January 23, a resolution proposal was registered in the American Senate, resembling an ultimatum.

The Panama Canal is an artificial waterway (opened in 1914) that connects the Atlantic and Pacific Oceans, allowing nearly 14,000 vessels to transport goods from one ocean to another without bypassing South America. This route shortens their journey by 15,000 kilometers.

About 5-6% of the world's trade volume passes through the Panama Canal each year, making it one of the most crucial transportation corridors globally, on par with the Suez Canal, which also significantly reduces logistical distances for its users.

Approximately two-thirds of the vessels using its services sail under the American flag. The volume of goods they transport through the canal accounts for 40% of all container shipments in the United States! Thus, the Panama Canal is of extreme importance to American business. Donald Trump first discussed the need to return the Panama Canal as a businessman back in 2011.

The History of Cooperation: What Relation Do the USA Have to the Canal's Construction

The canal generates revenue of $5 billion annually for Panama (4% of its GDP). However, for Panamanians, the canal is not just a complex of engineering structures and enterprises; it is the primary source of revenue for their national treasury (over 23% of the budget's income). In 1994, the Panama Canal was recognized as one of the seven modern wonders of the world. It has long transformed from a mere infrastructure object into a symbol of national pride and even identity.

It was the construction of the Canal through the Central American isthmus in the early 20th century that propelled Panama towards state independence. The construction was incredibly challenging. The uneven terrain necessitated the building of dozens of locks through which ships could cross the isthmus. Over more than a decade of canal construction in the Central American jungles, thousands of workers—mostly migrant laborers from neighboring countries—died from diseases and workplace injuries.

The Panama Canal was officially opened in the midst of World War I. The last industrial explosion was triggered by a button pressed by U.S. President Woodrow Wilson directly in the White House (the signal to the detonator was transmitted via telegraph lines).

For the United States, the construction of the Panama Canal became a symbol of peaceful development and the prosperity of America as part of the world, at a time when Europe was engaged in self-destruction in a bloody war. For Panamanians, it was a unique opportunity to be part of a grand infrastructure project from a technologically advanced nation. Control of the Canal remained with Washington. American troops were introduced to the surrounding area, simultaneously guaranteeing the sovereignty of the young Panama.

The importance of this artery is underscored by the fact that the first overseas visit in U.S. presidential history (then held by Theodore Roosevelt) was made to Panama to personally inspect the canal's construction.

The Struggle for the Panama Canal During the Cold War

The situation changed in the 1960s. A wave of anti-colonial sentiments reached Panama. The Suez Canal was handed over to Egypt. Numerous African and Asian countries gained independence from former metropolises. These processes occurred during the height of the Cold War—with the Kremlin's support. Young activists then infiltrated the territory controlled by the American military with the aim of raising the Panamanian flag. A clash ensued, resulting in the deaths of several American soldiers and dozens of protesters. It became impossible to avoid the issue of the jurisdiction of the Panama Canal.

For Washington, this question became genuinely problematic. It could not resort to force due to international prestige (direct analogies with Moscow's actions in similar situations in Eastern Europe would be inevitable). However, no president was willing to simply relinquish such a crucial canal for the United States.

The Panama Canal has remained a vital transportation artery not only for the external economic activities of the U.S. but also for its internal trade, as it connects the eastern and western coasts. Since the mid-19th century, the state of California, which was settled earlier than the Midwest, was connected to New York by sea route—around Cape Horn (the southern tip of the American continent, near Antarctica). The situation regarding cargo transportation did not change with the construction of the transcontinental railroad or the rapid development of civil aviation in the mid-20th century.

Finally, Jimmy Carter took on this geopolitical "hot potato." He signed a clever agreement that granted Panama final control over the canal only in 1999. In this way, Carter shifted the image-related losses to his successor a quarter-century later (who turned out to be Bill Clinton, also a member of the Democratic Party).

The U.S. Takes Up Arms

It is hard to overlook the fact of the U.S. military invasion of Panama decades after the agreement was signed. Following the orders of then-President George H.W. Bush, American armed forces arrested Panamanian military dictator Manuel Noriega for his involvement in drug trafficking to the U.S. However, this had no impact on the agreement—by 1999, Panama had full control over the canal.

The infrastructure came under the jurisdiction of the Panamanian government. However, in technical terms, everything remained in the hands of multinational corporations (MNCs)—only one of the five ports forming the canal's logistical structure belongs to a Panamanian company. The others are registered in the U.S., Singapore, Taiwan, and Hong Kong. This is where the most interesting story begins.

The Canal Belongs to Panama. What About China?

In 1997, Hong Kong was handed over to the People's Republic of China (another deferred agreement, this time facilitated by Margaret Thatcher). However, the city retained the right to self-governance, making it a sort of Western enclave within the PRC and a popular offshore for many MNCs doing business in the Pacific Basin. However, with Xi Jinping coming to power, Beijing decided to strip Hong Kong of self-governance in a rather harsh manner. The future status of MNCs registered in Hong Kong remains uncertain.

Every fifth ship passing through the Panama Canal is Chinese. However, what is even more interesting for Beijing may be the geopolitical influence that the transportation corridor provides, enabling it to control nearly half of the cargo transportation of its competitor nation. Washington understands this, which explains the intense focus on what has been a foreign infrastructure object for over a quarter of a century.

The Panama Canal and Huge Money—Whose?

So, what does this mean? Has Panama, seizing the geopolitical moment and riding the wave of anti-colonial slogans, managed to strip its powerful neighbor of what Americans built over a century ago at the peak of their technological development?

Here, a very significant nuance arises. After gaining full sovereignty over the canal, Panama began its reconstruction, which lasted over a decade and was completed in 2014. The infrastructure of the Panama Canal has been significantly updated; it can now accommodate ships one and a half times larger than before, aligning with the modern technical capabilities of the cargo fleet.

Importantly, the toll for using the canal is based on the volume of cargo transported by the vessel. Former Panama Canal administrator Jorge Luis Quijano stated that the largest ships can pay up to $1.2 million for passage. And a history professor at the University of Maryland in College Park, Julie Greene, believes that since 1999, the Panama Canal has been operating significantly more efficiently and better than during the years it was under U.S. control.

Panama has become one of the wealthiest countries in Latin America in terms of per capita wealth, and its residents attribute this not least to the acquisition of sovereignty over the canal, which literally divides their country in half.

"One Belt, One Road." China Controls the Ingress and Egress

A significant aspect has been the involvement of the PRC in the modernization of the canal. Atlantic Council analyst Jason Marczak noted the gradual and steady increase of China's influence in Panama since the granting of the first concession to the Hong Kong corporation Hutchison-Whampoa in the ports of Balboa and Cristobal back in 1997.

It is worth mentioning that was when Hong Kong was handed over to the PRC. After the modernization was completed, in 2015, the Hong Kong corporation CK Hutchinson Holdings acquired the port that belonged to a local company. Thus, the Chinese now own the infrastructure at both the entrance and exit of the canal. In 2021, the concession was extended for another 25 years.

In 2017, Panama became the first Latin American country to join China's infrastructure initiative "One Belt, One Road" (