The new elected United States president has been tough on Panama. Donald Trump has said the Panama Canal is cheating US firms and the government by high transit rates. Data disapproves that. The canal capacity for passing ships is limited. Especially droughts make it harder for the ships to pass the canal. The supply is inelastic and the shippers have to beed the amount they offer in order to pass through the canal. Typically ships pay less than $ 400,000 to pass the canal; this is not a very high rate compared to the total cost of a shipper’s cost from the west coast of the United States to Erope. Basically, the canal fee is around 5 percent of the cost of the ship. In November 2023 a ship carrying liquefied natural gas stumped up a record $4m for a transit. American military vessels get to jump the queue. They have paid just $17m in transit fees in the past nine years. Chinese military vessels do not have such privilege.
It does not seem like the United States being ripped off by Panama. So why is Trump pressing Panama and its government? Probably to decrease Chinese presence in the country. During Mr. Trump’s first term, Panama ended diplomatic relations with Taiwan and established them with the Beijing government, which accelerated Chinese investment in major infrastructure projects.Panama renewed a major port concession held by a subsidiary of a Hong Kong-based company for another 25 years in 2021, despite American pressure to halt plans for a massive Chinese embassy at the mouth of the canal.
In the next 4 years Trump may urge Panama to tighten migration controls (Panama is a gate to the US from Latin America) , enhance investment conditions for American enterprises, or support the United States’ position against China. It may be sufficient for Panama to build a special trading office with Taiwan, which would dissuade Chinese investments in Panama.
Source: Economist
