Forgive us if we missed it, but we don’t recall Donald Trump campaigning to invade Panama and retake its famous canal. But there was the President-elect on the weekend, threatening our Central American ally with punishment if it doesn’t meet his demands.
“Our Navy and commerce have been treated in a very unfair and injudicious way. The fees being charged by Panama are ridiculous, highly unfair, especially knowing the extraordinary generosity that has been bestowed to Panama — I say, very foolishly, by the United States,” Mr. Trump told a crowd in Phoenix. “This complete ripoff of our country will immediately stop.”
He added: “We will demand that the Panama Canal be returned to the United States of America in full, quickly and without question. I’m not going to stand for it. So to the officials of Panama, please be guided accordingly.”
Where did that come from? Did some shipping magnate whisper in Mr. Trump’s ear? Panama’s President José Raúl Mulino quickly rebutted Mr. Trump and said Panama will defend its interests. Mr. Trump replied on Truth Social, “We’ll see about that.”
So what is Mr. Trump proposing to do — invade? Make the Americas in the image of William McKinley and Teddy Roosevelt again?
If we can introduce a few facts, Mr. Trump’s claim that Panama is gouging Americans is unfounded. Every vessel, regardless of its flag, pays the same rate according to tonnage and type. Container ships, which carry finished goods, pay more than bulk carriers. About 75% of the total price is a toll and 25% is for services like tugboat or locomotive escorts.
When the U.S. ceded the canal to Panama in 1999 under a treaty negotiated in the 1970s by Jimmy Carter, there was concern that the country couldn’t run the vital transit way. But the Panama Canal Authority has done well by guarding its institutional independence from the government and running as a business.
The canal’s budget is reviewed by its board of directors, the president’s cabinet and Panama’s congress, and excess earnings are transferred to government coffers. But the canal authority is financially and managerially independent of the state. A third set of locks, which opened in 2016, was planned and built by the canal authority, not Panama.
Lake Gatun is crucial to the canal operation, but it also supplies 60% of the country’s potable water, which takes priority over shippers. When an El Nino drought that started in June 2023 and lasted a year lowered the draft on the lake, the canal authority had to reduce sharply the number of daily transits. Jorge Quijano, a former Panama Canal administrator, told us that he estimates that the loss of revenue to the canal authority was about $1 billion.
To remain competitive and help customers get their products to market, the authority adopted an online auction for express passes. Those willing to pay more got through the shipping lanes faster. Others either had to wait or use alternate routes around the Cape of Good Hope or through the Suez Canal. If Mr. Trump wants to put pressure on Panama prices, he should demand that the Houthis stop firing missiles at commercial ships in the Red Sea.
When the canal was in U.S. hands, it adjusted tolls to break even. But today the Panama Canal Authority can’t depend on the U.S. government for maintenance or capital expenditures.
Mr. Quijano says that building the one or two more reservoirs needed to mitigate water uncertainty could cost more than $2 billion. The authority has to think about its bottom line so it charges for the market value of the canal, measuring size, weight and demand. It holds a public hearing on toll increases, and in the past it has adjusted fees based on feedback.
We doubt Mr. Trump knows much of this, and he’s famous for popping off to grab attention and hit a nationalist theme.
Perhaps he’s concerned about China’s spreading influence in Latin America, which is real and isn’t in the U.S. interest.
Two of the canal’s five cargo ports are run as a concession by Hutchison Whampoa, a publicly traded firm on the Hong Kong stock exchange, while three others are run by U.S., Singapore and Taiwanese commercial interests.
