Trump threatens to ‘demand the return’ of Panama Canal: What is its history, significance?

The long post also spoke of the canal’s history and said, “When President Jimmy Carter foolishly gave it away, for One Dollar… it was solely for Panama to manage, not China, or anyone else.”

What is the Panama Canal and why is it significant for the US?

The construction of the Panama Canal had long been envisioned, simply because moving from one ocean to the other by going around the tip of South America was costly and time-consuming.

Panama canal map.

It was built between 1904 and 1914, largely thanks to US efforts. Until then, building a canal was considered difficult due to the region’s uniquely challenging geography. France had previously abandoned similar efforts due to its high costs.

But that did not deter the United States. President Theodore Roosevelt, in a speech to Congress, said about the project, “No single great material work which remains to be undertaken on this continent… is as of such consequence to the American people.”

Colombia controlled Panama until 1903, when a US-backed coup helped Panama achieve independence. In exchange, the US received rights to build and operate the canal and permanent rights to the Panama Canal Zone through the Hay-Bunau-Varilla Treaty of 1903.

However, according to the US government’s Office of the Historian website, the Panamanian representative entered the negotiations without formal consent from his government and had not lived in Panama for 17 years. This led many Panamanians to question the treaty’s validity.

What was the US’s role in Panama Canal’s construction?

The US solution to the engineering problem was a system of “locks”, or compartments with entrance and exit doors. The locks function as water lifts: they raise the ships from sea level to the level of Gatun Lake (26 meters above sea level); thus, ships navigate through the channel of the Canal. This video shows how the system works:

Though construction efforts ultimately succeeded, they came at a cost – more than $300 million in what was then the costliest construction project in US history, and the lives of thousands of workers.

Today, the canal registers around 14,000 transits a year, though the number has dipped due to the lake drying in recent years. Around 6 per cent of world trade (by value) passes through it.

Why did the US give away the Panama Canal?

Since the canal opened, its control was a point of contention between Panama and the US, with riots in the zone in 1964. Several negotiations were attempted.

In the 1970s, presidential candidate Jimmy Carter also opposed a treaty, but following his electoral victory in 1976, his view changed. The next year, the Torrijos-Carter Treaties were signed, giving the US the power to militarily defend the Panama Canal against “any threat to its neutrality”. Further, the Panama Canal Zone would cease to exist on October 1, 1979, and the Canal would be turned over to the Panamanians on December 31, 1999. There is no mention of the “One Dollar” Trump referred to in his post.

Trump said in his post that in doing so, the US bestowed “extraordinary generosity” onto 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,” he wrote.

Former Harvard Business School professor Noel Maure, author of the book The Big Ditch: How America Took, Built, Ran, and Ultimately Gave Away the Panama Canal, explained the reasons behind the US gaining and relinquishing its control in a 2010 interview.

“By keeping the Panama Canal in American hands, the United States ensured that transit rates would remain low.. [it] ensured that most of the surplus would flow to American producers and consumers.”

However, by the 1970s, the canal began losing economic value for the US. “On one end, the canal was squeezed by rising costs due to American mismanagement. Panama Canal employees in essence captured canal management and ran it for their own benefit: salaries escalated, along with costs and accident rates, and the administration didn’t even bother to do simple things such as deepen shallows or install lights. In this, canal employees were greatly aided by the peculiar place the canal held in America’s national mythology.”

Plus, the neutrality treaty was already in place, aiding the US strategically, so there was no additional need for the US to operate it.

“That is why (former US President) Harry Truman first proposed ‘ditching the Big Ditch,’ and (Presidents) Lyndon Johnson, Richard Nixon, and Gerald Ford all made serious efforts to negotiate a handover. That said, it took Jimmy Carter’s willingness to cut endless deals and risk political suicide to get the Panama Canal treaties through the Senate. The reason was that a large swath of American public opinion opposed the Panama Canal treaties, but their motivation was a defensive American nationalism, not American national defense,” Maure said.

Trump also mentioned that China should not manage the canal, likely referencing its growing influence in the region. Daniel F. Runde, the Senior Vice President at the think tank Center for Strategic and International Studies, wrote in 2021 that “Chinese companies have been heavily involved in infrastructure-related contracts in and around the Canal in Panama’s logistics, electricity, and construction sectors.”

It also relates to China’s ambitious Belt and Road Initiative (BRI) project that funds infrastructure projects in developing countries. South America, a region traditionally seen by the US as its area of influence, has seen Chinese investments grow in the last decade. Just last month, Peru inaugurated a massive China-built-and-owned shipping terminal at Chancay. Panama, meanwhile, was the first Latin American country to sign the BRI in 2018.