Posted originally on Feb 4, 2025 by Martin Armstrong 

Panama was presented with an ultimatum to control foreign Chinese influence in the Panama canal or face retaliatory measures. While retaliatory measures were not specified, the State Department said that Panama was violating the Treaty Concerning the Permanent Neutrality and Operation of the Panama Canal, and the US would move to protect itself. Secretary of State Marco Rubio met with Panamanian President José Raúl Mulino on Sunda,y and Panama caved to US pressure.

Panama is terminating standing agreements with the Chinese government before their initial end dates in 2027 and 2028. The “Belt and Road Initiative” (BRI) will not be renewed. Panama became the first Latin American nation to join the BRI in 2018 after cutting all diplomatic ties with Taiwan the year prior. China invested around $1.4 billion on infrastructure for the canal and port expansions. Panama said it will look into leaving the BRI earlier if possible.

Panama’s president said he is focused on strengthening ties with the United States and attracting new US investments. Some believe Panama heeded to Trump’s warnings swiftly to avoid the US taking back the canal. The US president long accused Panama of overcharging US vessels despite 66% of traffic being linked to US ports.

The Panama Canal was an engineering masterpiece that changed world trade. Theodore Roosevelt called the canal a “highway of civilization.” Prior to the canal, trade from the Atlantic to the Pacific Ocean would be routed around South America, a trip that could take up to two months. The US found the thinnest strip of land to create a shortcut for trade. The area of the Panama Canal was technically controlled by Colombia at the time, but Colombia was not interested in the project and permitted the French to build a shortcut in 1882. The French failed to build a successful canal and the project went bankrupt before completion.

America intervened and helped Panama form a new government and reclaim its impudence in 1903. Panama gifted the US that much-desired strip of land in 1904, and the US paid the French $40 million for the remainder of the canal. It took $375 million ($12 billion) to complete the canal, but the return was admissible. This is no simple passage but a series of locks and water chambers that slowly fill to permit ships to pass through the artificial river. The project, completed in 1914, was hailed as a massive success. Shipping time between New York and San Francisco was cut by 8,000 miles. Investors rushed to back the remainder of the project, and about 5% of all world trade began passing through the Panama Canal.

Trade through the canal continued to increase each year, providing the US with notable revenue. The passage also provided a strategic military channel during World War II.

The Torrijos-Carter Treaties of 1977 led to Panama regaining full control of the canal by 1999. Former President Jimmy Carter wrote in his personal diary that it was “obvious we cheated Panama out of their canal.” Yet, the US not only funded the project but assisted Panama in gaining independence. Carter believed the US would viewed as less imperialistic by “returning” what never belonged to Panama. Panama vowed to maintain a neutral stance on the canal but part of the treaty did permit America the right to defend the canal.

This treaty was one of the worst deals in modern US history. Carter gave away a crucial economic and military asset, weakening America’s global position, and still agreed to help Panama maintain the canal. America now must pay to use the very canal it built, with 40% of US container traffic passing through the canal and paying ever-increasing tolls. Panama was not maintaining their end of the bargain by entering the BRI. This comes down to a broader issue of the disastrous 1977 Torrijos-Carter Treaty that cannot be easily or legal undone.