Why has Trump called the Panama treaty ‘foolish’? | Explained Premium

Donald Trump threatens to take back Panama Canal due to high transit fees and Chinese presence, sparking diplomatic tensions.

The story so far: On December 22, 2024, Donald Trump threatened to take back the Panama canal, calling the transfer treaty “foolish”. He said, “Our Navy and Commerce have been treated in a very unfair and injudicious way....we will demand that the Panama canal be returned to us, in full, and without question.” Panama’s President José Raúl Mulino rejected Trump’s threat, and said, “I want to express precisely that every square metre of the Panama canal and its adjacent area belong to Panama, and will continue to belong to Panama.”

The first and major reason for the U.S. President-elect’s upset is the high transit fees applied on U.S. vessels by the ACP (Panama Canal Authority). In 2023, Lakes Gatun and Alhajuela experienced severe drought affecting the shipping and navigation of the canal as it relies on these reservoirs to operate its locks. Therefore, the ACP reduced the number of slots for crossing ships by 36%. This led to the increase in transit fees. The second cause of worry has been the increased Chinese presence in the Panama canal. In 2017, Panama became the first Latin American country to sign a Belt and Road Initiative (BRI) agreement, and ever since then, Chinese investment has increased significantly. Hutchison Ports PPC, a subsidiary of a Hong Kong-based company, operates two ports near the canal’s entrances, igniting concerns over Chinese influence on logistical operations and surveillance over the U.S. Navy.

The Panama canal is an artificial 80-kilometre canal connecting the Atlantic and Pacific Oceans, reducing cost, time and distance for international shipping. The canal is crucial for the global supply chain, and 6% of maritime world trade goes through it. The canal also symbolises U.S.’s technological prowess and economic power. It opened in 1914 after the U.S. finished construction, and was controlled by the U.S. until December 31, 1999.

The canal was handed over to Panama in 1999 under the Torrijos-Carter Treaties. The first, called the Panama Canal Treaty, cancelled the Panama Canal Zone and turned the canal over to the Panamanians on December 31, 1999. Under the second, the Permanent Neutrality Treaty, the canal was declared neutral and open to vessels of all nations. Under this treaty, the U.S. has the right to defend the neutrality of the canal and have priority passage in military emergencies.

Panama’s President José Raúl Mulino has rejected Mr. Trump’s accusations. He addressed the accusations by defending the transit rates and clarifying the concerns about external influence over canal operations. He stated that the transit rates are set according to international standards and decided by a procedure. He denied any involvement of external powers such as China or the European community while emphasising the importance of sovereignty for Panamanians. He responded to Mr. Trump’s accusation of Chinese soldiers operating the canal, saying, “There is not a single Chinese soldier in the canal, and on the other hand, there will not be”.

The concerns over fee hikes and operations logistics will likely be discussed diplomatically, despite Mr. Trump’s threats. While the U.S. might attempt to influence Panama and pressure the latter with renegotiations, Panama will look for international support to reaffirm its sovereignty. China has also responded to the accusations. Foreign Ministry spokesperson Mao Ning said that the Panama canal was a great creation for the Panamanian people and a neutral passageway. He added that China respects Panama’s sovereignty.

Vaneeta is a postgraduate student at Pondicherry University.