Trump to Panama: Reduce ‘ridiculous’ tolls or US will take back canal
‘This complete rip-off of our country will immediately stop,’ says Trump
President-elect Donald Trump appears to be under the false impression the US can claw back the Panama Canal decades after giving it away. He bemoaned ‘exorbitant’ transit fees and alleged that China is involved in the canal’s management
THERE are threats from US President-elect Donald Trump that seem likely to materialise, such as the 10% tariff hike on Chinese goods, and then there are the bullying bluffs — the barks that won’t translate into bites.
Trump’s social media tirade against the Panama Canal on Saturday — in which he said the US could “demand that the Panama Canal be returned to us in full and without question” — falls in the latter category.
The US has no legal means to take back the canal. The only way it could get the waterway back is to invade Panama.
A treaty was signed in 1977 to hand over the canal to Panama on December 31, 1999, after which the treaty expired and Panama owned the waterway, which is run by the Panama Canal Authority (ACP). The ACP spent over $5bn on the construction of a new set of locks that debuted in 2016.
Panama President Jose Raul Mulino said in a defiant public address late Sunday, “I want to express clearly that every square metre of the Panama Canal and its adjacent zone belongs to Panama and will continue to do so. The sovereignty and independence of our country are not negotiable.
“Any contrary position has no validity or support on the face of this earth.”
Shortly after Mulino’s public address, Trump posted a reply on his Truth Social account: “We’ll see about that!” and then a photo of a canal and an American flag with the tagline: “Welcome to the United States Canal!”
Concerns over China
Another agreement signed in 1977, the Neutrality Treaty, remains in place in perpetuity. It stipulates that the canal “shall remain permanently neutral”.
To win passage of the agreement in the US senate in 1977, then-US President Jimmy Carter and then-Panamanian leader Omar Torrijos issued a joint communique clarifying that the US retained the right “to defend the canal against any threat to the regime of neutrality”.
Trump said on Saturday that the canal “was solely for Panama to manage, not China or anyone else” and that he considers it “a vital national asset for the United States due to its critical role to America’s economy and national security”.
“We will never let it fall into the wrong hands!” he proclaimed.
While it is true that Chinese companies have significant interests in Panama, including its ports, China has no role in the management of the canal.
Mulino said, “The canal is not under direct or indirect control of China, of the European Community or of the United States, nor of any power. As a Panamanian, I strongly reject any statement that distorts this reality.”
Concerns over toll costs
Trump said the canal was “not given for Panama to charge the United States, its navy or corporations doing business within our country exorbitant prices and rates of passage. Our navy and commerce have been treated in a very unfair and injudicious way”.
“The fees being charged by Panama are ridiculous, especially knowing the extraordinary generosity that has been bestowed to Panama by the US. This complete ‘rip-off’ of our country will immediately stop.”
Mulino responded, “Rates are not a whim. They are established publicly and in an open hearing, taking into account market conditions, international competition, operating costs, and the maintenance and modernisation needs of the interoceanic route.”
Canal transit costs did indeed rise over the past year, but this was due to the weather, not a hike in the toll structure.
Panama suffered a historic drought in 2023 and early 2024, causing severe and unprecedented transit restrictions. The ACP obtained windfall revenues from slot auctions during the crisis. As a result, the ACP’s toll revenue per tonne of cargo rose significantly in its latest fiscal year, which ended in September.
Now that the drought is over, canal operations have normalised and there are no more ACP windfall revenues from slot auctions.
“The United States is the number-one user of the canal,” added Trump, arguing that the canal was not given to Panama “for the benefit of others” but as “a token of co-operation”.
According to ACP statistics, 75% of the cargo passing through the waterway in the latest fiscal year was either destinated for, or originated from, the US. However, the users of the canal — the ACP’s customers — are ship operators and owners, not importers, exporters or countries. Virtually all of the ACP’s customers are non-US ship operators and owners.
The ACP does not have the legal ability to provide special reduced rates for US inbound or outbound cargoes in return for the America’s “extraordinary generosity” during the Carter administration, as that would violate the Neutrality Treaty.
US cargoes no longer face transit issues at canal
Container lines serving US ports were forced to reroute services during the Panama drought when transits were restricted, but shipping executives downplayed the rate impact from this disruption. Transits of neopanamax containerships via the Panama Canal have rebounded to pre-drought levels.
The drought also forced vessels carrying US exports of propane and liquefied natural gas to take the longer route around the Cape of Good Hope.
This has not affected freight costs for US LNG exports, because the drought has coincided with a period of high LNG carrier newbuilding deliveries and liquefaction project delays. In fact, LNG freight rates are now so low that shippers of US LNG continue to take the Cape of Good Hope route to Asia even though the canal has normalised.
The disruption did increase spot freight rates for US propane exports aboard very large gas carriers in late 2023. But VLGCs have since returned to the Panama Canal — there are now more VLGC transits than before the drought — and the freight rate upside from the drought is over.
The drought forced US grain exporters to book cargoes on the longer Cape of Good Hope route in late 2023 and early 2024, but this did not have a significant effect on freight rates. Panamax rates have been very weak and remain so. More bulkers are returning to the Panama Canal route in the current US grain export season now that restrictions have been lifted.
