Why Panama Canal is big, long-term prize in Trump’s global trade war

The Panama Canal has spent the past few years battling extreme weather, with the El Niño phenomenon and severe drought leading to a water-level crisis. Now, it’s President Trump’s trade war that is threatening the global trade gateway. A critical passage for U.S. East Coast bound ocean freight container traffic, the Panama Canal is facing a potential business slump as a result of Trump’s China tariffs and a rapid decline in manufactured goods being ordered by U.S. shippers.

Forty percent of all U.S. container traffic travels through the Panama Canal every year, and in all, $270 billion in cargo annually. The U.S. and China are the top users of the Panama Canal, and its role in global shipping has increased in recent years due to the disruption of global supply chains. The Panama Canal Authority’s revenue hit $3.38 billion last year, despite drought conditions, and revenue has increased every year since 2017.

The trade war uncertainty and Trump’s 145% tariff on Chinese goods — which will start to hit goods arriving from China to U.S. ports on May 27 based on the four to six weeks it takes for ocean freight to reach the U.S. from Asia — has already resulted in a massive pause on U.S. imports bound from China. According to data from supply chain intelligence firm Project44, there has been a 300% increase in blank sailings (cancelled freight vessels) from China to the United States since Trump’s so-called “Liberation Day” tariffs announcement on April 2.

West Coast ports in the U.S. are already being hit and the impact on East Coast ports is expected to increase, with the pullback in vessels a result of the decrease in manufacturing orders for Chinese factories: less products manufactured translates into less shipping containers for ocean carriers.

For the Asia to North America East Coast trade route, Sea-Intelligence has recorded a cumulative blanked capacity of 261,822 twenty-foot equivalent units (TEUs.) over the last six weeks. This decrease in containers and vessels can impact Panama Canal revenue. The Panama Canal makes its money off of the number of vessel transits and containers moving through the waterway.

“Since close to 75% of our cargo goes to or from the United States, any recession worldwide or in the United States will impact somehow the Panama Canal,” said Boris Moreno, vice president of operations for the Panama Canal Authority. “That’s for sure.”  

One of the “Seven Wonders of the Modern World,” according to the American Society of Civil Engineers, the canal has been a lightning rod for controversy in recent years in the battle for global supremacy between the U.S. and China. Trump has claimed the canal’s key ports are being controlled by China, and has threatened to reassert U.S. control over the canal, accusing Panama of charging excessive rates. China, along with government of Panama, have denied those claims.

Secretary of State Marco Rubio and Secretary of Defense Pete Hegseth both visited with Panamanian government officials in recent months.

“I think that Panama over the last five years has inched closer and closer to China and away from the United States,” Federal Maritime Commissioner Louis Sola said in an interview with CNBC earlier this year. “I’ve seen China and Brazil take away $20 billion with direct contracts. We definitely need to at least have a game there.”

Ricaurte Vasquez, administrator for the Panama Canal Authority, tells CNBC that with the U.S. being the world’s largest economy, it is reviewing Trump’s concerns.

“Whatever is said in Washington has repercussions all over,” said Vasquez. “We try to stay cool, calm and collected.”

He added, “It is not true that we are run by Chinese. It is not true that we differentiate rates. It is not true that 38,000 people die in the construction of the Panama Canal. Everyone that wants to sail sails through the Panama Canal. And we are open to the world. That is the neutrality treaty. We have to remain open.”

In March, an investment group led by U.S. firm BlackRock announced it was trying to purchase two ports at either end of the canal, as well as about 40 others from Hong Kong based-CK Hutchison. The outcome of that deal remains unclear.

Watch the video above to learn more about the business of the Panama Canal and why President Trump is focused on it.