Why does Trump want the Panama Canal back?

They called themselves the Zonians. For the best part of a century they carved out their own little piece of paradise in Central America, arriving from the United States to manage and operate and defend the Panama Canal. They lived in a narrow strip of land called the Zone, bordering both sides of the strategically valuable waterway.

The more privileged of the Zonians – officials, canal workers and military personnel – were to eventually enjoy a relatively luxurious, if unusual, lifestyle in the equatorial jungle. They had monkeys and parrots in their backyards, yet the shops were stocked with American treats, the schools offered a US education and little league sport teams boasted authentic cheerleaders. They had subsidised housing, their own police and judiciary, free healthcare and parades on the Fourth of July – a suburban utopia, even if you had to watch out for snakes on the golf course.

By the 1960s, though, with anti-imperialist sentiment ascendent, Panama wanted its land back. In 1977, US president Jimmy Carter signed a treaty to hand over control of the canal and the Zone, by degrees. By the end of the century, most of the Zonians had gone, their houses occupied by Panamanians.

Now, 25 years later, US interests in the canal are suddenly being revived. President Donald Trump has said he thinks the US should take it back. He’s suggested it’s controlled by China – a strategic challenge to US interests. At first, his comments were met with disbelief. Now they are ringing alarm bells. Panamanians are worried. Is Trump serious? Why does he want the canal? And is it even possible to take it?

How did the US control the canal in the first place?

One of the greatest engineering feats ever, the Panama Canal opened for business in 1914, creating a much-needed shortcut between the Atlantic and Pacific oceans. Travelling from one side of the Americas to the other by ship no longer involved rounding Cape Horn, in southern Chile, saving some 13,000 kilometres, or five months, in a typical vessel at that time.

Today, about 38 to 40 ships a day use the canal, including commercial container carriers, passenger liners and naval vessels – around 5 per cent of world maritime traffic in total. More importantly, the canal transports 16 per cent of US trade goods and more than two-thirds of its traffic originates in, or is destined for, the US. China is the second major customer, followed by Japan. Vessels able to fit through the Panama Canal were known to shipbuilders as “Panamax” and after a 2016 upgrade to the canal “New Panamax”.

Leaders had been eyeing the Isthmus of Panama since the 1500s, when Spanish ruler Charles V ordered a survey of a potential waterway that might offer a military edge over the Portuguese. Centuries later, it was navigable only by mule and canoe until, in the mid-1800s, the US built a railway. In 1869, French diplomat Ferdinand de Lesseps, who had delivered the Suez Canal through Egypt, agreed to replicate the feat in 1881 in Panama (then a province of Colombia).

But slashing through mountainous jungle was not the same as carving the Suez from flat, sandy terrain at sea level. The French project became an “abysmal failure”, Julie Greene, author of The Canal Builders, tells us from the University of Maryland. Some 22,000 workers died from tropical diseases or in accidents. “It was said when the French engineers and officials would travel to Panama, the lead officials would bring caskets with them because they knew it was so likely they would die,” says Greene.

Meanwhile, Gustave Eiffel (of tower fame) was deployed to design a lock system – by which gravity fills or drains a water chamber to increase or lower its level – but de Lesseps went bust. US president Theodore Roosevelt made a counter-offer to get the job done. When the Colombian government knocked back Roosevelt in 1902, it was ousted by separatists who saw the US investment as an economic boon and declared independence from Colombia.

Under the commercial deal finally struck to finish the canal, the Hay-Bunau-Varilla Treaty, signed by US secretary of state John Hay and French engineer Philippe Bunau Varilla, the US received a 16-kilometre-wide strip of land, the Zone, in return for a $US10 million payment to Panama plus yearly contributions of $US250,000 for the life of the deal (raised to $US1.9 million in 1955) and a guarantee of Panama’s independence.

Enter the Zonians, several thousand “gold roll” US workers, such as engineers and doctors, paid in gold coins and living in expatriate townships such as Gamboa, which had grown from a workers’ camp in 1911. Travel writer Paul Theroux, who recounted his travels through Panama in the 1970s in The Old Patagonian Express, described Gamboa as “a triumph of banality, a permanent encampment of no-nonsense houses and no-nonsense railway stations and no-nonsense churches, and even no-nonsense prisons.”

As part of a two-speed economy, other workers on the canal, most from Caribbean islands, were paid in silver. Trump claims “we lost 38,000 lives” building the canal. Historians think the official toll of 5609 between 1903 and 1914 is an underestimate. Even so, says Greene, “the vast, vast majority of deaths were Afro-Caribbeans”.

‘By the mid-1960s, there began to be a consensus among American elites that the Canal Zone had to end.’

Julie Greene, author of The Canal Builders

After World War II, Panamanian resentment grew over what they viewed as US colonialism on their soil. There were riots in 1959 and more that turned deadly in 1964, when 22 Panamanians and four US soldiers were killed. “By the mid-1960s, there began to be a consensus among American elites that the Canal Zone had to end,” says Greene. Theroux described a half-hearted “Save Our Canal Day” protest. “At a certain point in every conversation I had with these doomed residents of Panama, the Zonian would bat the air with his arms and yell, ‘It’s our canal!’”

Running for president in 1976, Republican candidate Ronald Reagan insisted the US should hang on to it. “I’m going to talk as long and as loud as I can against it,” Reagan said on the eve of Jimmy Carter’s relinquishing control, in a bid to strengthen US relations with Latin America and to correct historical injustices. “I think that, basically, the world is not going to see this as a magnanimous gesture on our part, as the White House would have us believe. They are going to see it as, once again, Americans backing away and retreating in the face of trouble.”

Says Greene: “The reason why popular opinion didn’t support transferring it had to do with the way in which the canal had been promoted all along as this selfless gift to world civilisation. The imperialism and exploitation that was centrally involved in the acquisition of the canal and in its management over the decades had been carefully erased. And I think that sort of boosterism was so successful that Americans found it hard to give up the canal.”

Why the sudden interest in the canal now?

When and why Donald Trump became concerned about Panama is not widely known, although he appears to have made his first public comments to the conservative podcaster Tucker Carlson in August 2024. Asked about the extent of Chinese “imperialism” in the Americas, Trump started complaining about the canal, claiming that Jimmy Carter had given it away and China is in charge. “They run it, they control it, and we shouldn’t let that happen. … We built the Panama Canal … We should have had it, but we gave it for $1. Think of it.”

Trump continued to make similar claims after he was elected, in December using social media to accuse Panama of charging excessive rates on US ships, suggesting again that the canal was falling under Chinese control. He mentioned Panama in his inauguration speech on January 20. “We didn’t give it to China,” he said. “We gave it to Panama, and we’re taking it back.” Fact-checking by news agencies such as Reuters suggests the basis for these claims was sketchy to say the least.

Secretary of State Marco Rubio, who will visit Panama soon on his first overseas venture in his new role, told the Senate foreign relations committee in January that “while technically, sovereignty over the canal has not been turned over to a foreign power, in reality a foreign power today possesses, through their companies, which we know are not independent, the ability to turn the canal into a choke point in a moment of conflict, and that is a direct threat to the national interest and security of the United States”.

The canal remains a pillar of Panama’s economy, generating some $8 billion in revenue each year, about 4 per cent of the nation’s GDP. In December, protesters burned an image of Trump outside the US embassy, chanting “Trump, animal, leave the canal alone” and “Get out, invading gringo”. Panama’s President, José Raúl Mulino, said he rejected “in its entirety everything Mr Trump said, firstly because it was false and, secondly, because the Panama Canal belongs to Panama and will continue to belong to Panama”.

Does China have influence over the Panama Canal?

Panama, thanks to its geography, is a “strategic flashpoint”, says the University of Melbourne’s Flavia Bellieni Zimmermann, an international political analyst. “When you think about the Trump administration’s strategy, he’s focusing on trade, and he’s very concerned with the rise of China. For Trump to consolidate US power in the global market, the Panama Canal is very important.” (It was ever thus: The Atlantic described the canal in 1939 as “at once the greatest trade route on earth and the stronghold which permits the United States to maintain first place among the world powers”.)

Trump’s claims appear to be based on the fact that two major ports bookending the canal, Balboa and Cristobal, are leased to a company that is majority owned by multinational CK Hutchison Holdings, listed in Hong Kong. Hong Kong is a special administrative region of China now subject to far-reaching national security laws (more on which shortly). The family of Hong Kong billionaire Li Ka-Shing, the former chair of CK Hutchison Holdings, owns the biggest stake in the company, 30 per cent.

“It’s a very large, publicly listed company, so it is likely to have a lot more independence from the Chinese government than other smaller ones,” says Carla Martinez Machain, a professor of political science at the University at Buffalo, who conducted research in Panama in 2018. “That said, it is true that in Hong Kong, as in the rest of China, the Chinese government does have some ability to influence the decisions of private companies.” Hutchison declined to comment for this article.

Panama and China have denied that China has any direct control over the canal. The Panama Canal Authority is the government agency that has run the canal independently since 1999. The authority has launched an audit of Hutchison’s operations “aimed at ensuring the efficient and transparent use of public resources”. Julie Greene also rejects Trump’s suggestion China has control over the canal. “It’s ridiculous,” she says. “The Republic of Panama is a sovereign nation. It has the right to enter into negotiations with whatever countries it wishes, and the canal is managed and run entirely by the Panamanian government.”

‘The kernel of truth isn’t ownership of the Panama Canal, the kernel of truth is Chinese influence in Panama …’

Jennifer Parker, maritime security specialist

The Chinese government’s direct influence is limited, agrees Tabita Rosendal Ebbesen from Lund University in Sweden, where she researches Chinese governance practices. But she suggests it could potentially gain access to sensitive data “such as transshipment volumes and types of cargo, the movement patterns of US Navy cruisers, and other information that the Chinese authorities may find important”. And Chinese-built ports could become available not just to civilian vessels but to military ones too, says Benjamin Creutzfeldt, an expert on China-Latin American relations at the University of Leipzig. “That’s why they are often deep-water ports that can technically have large ships and submarines. And that’s what often worries the US for good reason.”

Bottom line, says Jennifer Parker, a former Royal Australian Navy officer who is now a maritime security specialist, “Trump is right to be concerned about it but his untruthful statements have not helped the situation.” Is there a kernel of truth, then, in Trump’s statements? “Yes. The US should be concerned about it. The kernel of truth isn’t ownership of the Panama Canal, the kernel of truth is Chinese influence in Panama and access to and concessions over the ports.”

China has wider interests in Panama, which in 2017 broke diplomatic ties with Taiwan to establish them with China instead. Panama has signed up to China’s Belt and Road infrastructure development program, with promises of a new high-speed rail line, container port and an underground railway, and a $2 billion contract for a Chinese consortium to build a fourth bridge over the canal.

Loading

“Panama is a key gateway for influence in South America more broadly,” says Parker. China has been active throughout Central and South America, particularly in Peru, whose million-strong Chinese community is now around 10 per cent of the total population. According to the European University Institute, China sees Latin America as a safer bet for investment in natural resources – including petrochemicals, metals and food crops – than Africa, and a large market for its own exports.

“Chinese policy is to have as many friends as possible, in the broader sense, which means that it has strategic engagement and investment across the board wherever it can,” says Creutzfeldt, who has lived in Panama and neighbouring Colombia. “The Chinese government has raised its stakes over the last 20 years in Latin America, meaning Central and South America, and therefore, you know, people listen to China. They pay attention.”

China is Peru’s largest trading partner. “I know that Chinese feel comfortable in Peru,” says Creutzfeldt, who heads China’s Confucius Institute in Leipzig. “Partly because Peru has had migration from China since the 1820s.”

China has also lent about $100 billion to Venezuela, which is a major buyer of Chinese weaponry and military aircraft alongside Argentina, Bolivia, Ecuador and Peru, according to US think tank the Council on Foreign Relations. In 2014, a Chinese-based company began work on a canal across Nicaragua that would have competed with the Panama Canal, but the project was abandoned before any actual digging had taken place.

Loading

“Corporate entities based in China play an essential role in expanding the country’s economic engagement,” noted the Washington DC-based think tank the Atlantic Council in 2023. “The connection between Chinese companies and the Chinese Communist Party is fundamentally different from that of Western companies and their governments. There are numerous high-profile examples of Beijing directing corporate entities to meet the strategic demands of the party-state.”

Of course, the US’s own meddling in the region has not always been welcomed by those who live there.

Some figures in Washington view China’s growing influence across the region as a threat to the United States’ own traditional regional hegemony. “These projects give the People’s Republic of China access to sensitive sectors and critical infrastructure in ways that expose these countries to national security and data privacy threats,” General Laura Richardson, then commander of the US Southern Command, warned Congress in 2022.

Of course, the US’s own meddling in the region has not always been welcomed by those who live there, namely the CIA’s involvement in numerous coups, US support for the brutal regime of dictator Augusto Pinochet in Chile and Ronald Reagan’s barely covert war against the left-wing, anti-imperialist Sandinista group in Nicaragua in the early 1980s.

Could Trump actually take control of the Panama Canal?

It’s not just Panama that Trump has in his sights: he is apparently just as serious about annexing or buying Greenland, which he views as having strategic and resource importance to the United States. Could the US buy Greenland? “The legal answer to that is yes,” says Donald Rothwell, a professor of international law at ANU. “There’s a long history in international relations of territory being, and this is the technical term, ceded. Territory is ceded, transferred peacefully from one state to another. But having said all of that, I think the Danes have made it quite clear that Greenland is not for sale and I think the most important contemporary dynamic that’s not being properly understood here is that, of course, the Greenlanders have their own rights as indigenous peoples.”

But, unlike Greenland, says Rothwell, Trump cannot legally take back control of the Panama Canal. (Trump has offered zero detail on how he would do it.) “How this is going to happen, that’s the big question mark,” says Flavia Bellieni Zimmermann. “That’s why it is ruffling so many factors within international relations. Is he going to just completely violate international law and invade Panama?” In 1989, president George H. W. Bush sent 20,000 troops into Panama to overthrow the military leader Manuel Noriega. “That was very much about the US wanting to ensure that as Panama took control over the canal, that it would be a government friendly to the United States,” says the University of Maryland’s Julie Greene.

It appears that Trump is relying on the treaties that Carter struck with Panama in 1977, which stated that the US could use its military to defend the Panama Canal against any threat to its neutrality, which ensures “no discrimination against any nation”. Trump posted on social media in December: “It was solely for Panama to manage, not China, or anyone else … We would and will NEVER let it fall into the wrong hands! It was not given for the benefit of others, but merely as a token of co-operation with us and Panama. If the principles, both moral and legal, of this magnanimous gesture of giving are not followed, then we will demand that the Panama Canal be returned to us, in full, and without question.”

‘No other administration, until Trump, had ever made a case that neutrality has been threatened.’

Orlando Perez, professor of political science

In January, Marco Rubio told the Senate foreign relations committee that “an argument could be made that the terms under which that canal were turned over have been violated”.

Orlando Perez, a professor of political science at the University of North Texas, says: “So far, no other administration, until Trump, had ever made a case that neutrality has been threatened.” The treaty gives the US the right to have its naval ships jump the queue to pass through the canal quickly, and intervene if the treaty is threatened.

Panama has raised its fees for ships passing through the canal by about 10 per cent in recent years, says Perez. One reason was a drought which reduced the number of ships that could pass through. In 2024, fees also increased so the canal authority could meet its expenses. Trump has called the fees “exorbitant” and “highly unfair” while Panama’s president has said they are not inflated. Even then, Perez points out the treaty requires that “all users pay the same type of tolls based on the weight of the ships and the size of the ships” and the US is not being unfairly treated.

Loading

So what could happen next? Says Donald Rothwell: “No doubt Trump would seek to repudiate, effectively rip up the Panama Canal treaty. But after such a lengthy period of time, it would be very difficult to revoke the status quo. And in any event, there’s no question at all that the Panama Canal runs through Panamanian territory.” As for the broader security concerns, Creutzfeldt notes: “There’s never once been so much as a suggestion from China that they would blockade or limit usage of the canal.”

Perez expects a negotiation where “the Panamanians may become stricter in terms of Chinese investment”, but he also wouldn’t rule out “some sort of side agreement” that grants the US a cut in tolls under certain circumstances. “It will be something that Trump can tout as ‘See, I’ve gotten the Panamanians to agree to these things. And this is a victory.’”

For fun summer reading, buy the new anthology from the Explainer desk at The Age and The Sydney Morning Herald. Why Do People Queue for Brunch? The Explainer Guide To Modern Mysteries is packed with astonishing facts and sizzling barbecue banter. In bookstores now.