With concerns over Chinese activity and influence in the vicinity of the Panama Canal receiving significant focus from the Trump Administration, businesses engaged in international trade should be aware of the potential for trade-related action, including tariffs and transit-related restrictions, that could impact business logistics and the timely arrival of imports or delivery of exports.
The Panama Canal’s Importance to Trade
Since opening in 1914, the Panama Canal has played a pivotal role in facilitating international trade by shortening navigation distances and reducing oceangoing vessels’ transportation costs. An estimated 5-6% of the world’s global trade passes through the canal each year. This includes 40% of all U.S. container traffic, underscoring the waterway’s great importance for U.S. commerce in particular. During fiscal year 2024, the Panama Canal facilitated 9,944 vessel transits totaling 423 million tons. Over that period, the top countries of cargo origin and destination, by tonnage, were the United States (160.1 million MT), the People’s Republic of China (“China”) (45.0 million MT), Japan (30.7 million MT), the Republic of Korea (19.7 million MT), and Chile (17.4 million MT). Analyzed from a proportional standpoint, Guatemala and Ecuador depend the most on the Panama Canal, as 32% and 28% of each country’s respective seaborne imports and exports transit the canal. As for Panama itself, direct revenue from the canal accounted for about 4% of GDP in 2024, likely several percentage points higher when indirect and induced expenditures are included.
In the U.S. foreign policy context, the Panama Canal has been a subject of renewed focus. During his inauguration, President Trump stated “China is operating the Panama Canal. And we didn’t give it to China. We gave it to Panama, and we’re taking it back,” an early signal of his administration’s focus on curtailing Chinese influence in the vicinity of the canal. In response, on January 28, 2025, the Senate Committee on Commerce, Science, & Transportation held a hearing titled “Examining the Panama Canal and Its Impact on U.S. Trade and National Security,” during which a bipartisan group of Senators highlighted several concerns about the Panama Canal, including the adequacy of freshwater reserves and operational capacity, Chinese influence, and respect for neutrality established by the Torrijos-Carter Treaties.
U.S. Policymakers’ Current Concerns
In discussing China-related concerns, U.S. policymakers often reference the ports of Balboa (Pacific Ocean side) and Cristóbal (Atlantic Ocean side), the largest in the vicinity of the canal. The port of Balboa has an annual capacity of 5 million TEUs (20-foot-long containers), making it the largest transshipment terminal in Latin America, while Cristóbal has an annual capacity of 2 million TEUs. Each port is operated by an entity owned by Hong Kong-based CK Hutchinson, whose contract was recently extended to 2046, although a Panamanian audit remains ongoing. As a Hong Kong entity, CK Hutchinson is subject to Chinese national security laws that mandate cooperation with the Chinese Communist Party (“CCP”) on matters of national security. During the aforementioned Commerce, Science, & Transportation Committee hearing, Senators asserted that this arrangement could enable the CCP to use the ports to close canal entrances and/or conduct covert operations. Some Senators made the further claim that increasing Chinese presence and any covert operations could violate the Torrijos-Carter Treaties, which state that the Republic of Panama and United States agree to maintain a “regime of neutrality” over the canal and that “only” Panama will “operate” the canal.
On February 1, U.S. Secretary of State Marco Rubio arrived in Panama as the first stop in a multi-country trip to Latin America. There, he met with Panamanian President José Raúl Mulino and, among other issues, conveyed the Trump Administration’s “preliminary determination that the current position of influence and control of the Chinese Communist Party over the Panama Canal area is a threat to the canal and represents a violation of the {Torrijos-Carter Treaties}.” Concerns have also been voiced over the level of tolls being charged to transit the canal. This was followed by a call on February 4, 2025, between U.S. Secretary of Defense Hegseth and Panama’s Minister of Public Security Ábrego, which raised similar concerns, including with regard to foreign influence over the canal.
Potential Trade Action
As with many policy areas, the Panama Canal is one where the Trump Administration has linked traditional trade-in-goods policy with national security policy. In the wake of the meeting with Secretary Rubio, President Mulino of Panama announced that his country, the first in Latin America to join China’s Belt and Road Initiative, will hereafter discontinue its participation, either by early termination or non-renewal. On a separate question of whether U.S. government vessels would continue to be assessed canal fees, the two sides evidently disagreed.
Both the President and Secretary Rubio have asserted the intent to take measures aimed at protecting U.S. treaty interests in a neutral Panama Canal. Given the Administration’s characterization of the issues, responsive measures could take many forms, including tariffs or other trade restrictions under the International Emergency Economic Powers Act (“IEEPA”) (50 U.S.C. §§1701-1710) or Section 301 of the Trade Act of 1974 (19 U.S.C. § 2411-2420). Indeed, although untested, IEEPA authority to “prevent or prohibit, any…transactions involving, any property in which any foreign country or a national thereof has any interest…with respect to any property, subject to the jurisdiction of the United States” might be construed as empowering the President to restrict the use of the Panama Canal itself by U.S. vessels or non-U.S. vessels transporting U.S.-originating exports or U.S.-bound imports. Beyond this, in the event of a conflict, businesses that make direct or indirect use of the Panama Canal should also consider possible Panamanian responses regarding, e.g., canal fees.
Cassidy Levy Kent helps businesses assess and address supply chain risks and structure operations to account for trade contingencies. It is important that businesses consider the full scope of potential developments in their planning.