Born from “gunboat diplomacy,” the Panama Canal is under threat from US saber rattling once again.
More than 100 years after the construction of the engineering marvel that linked the Atlantic and Pacific oceans – and 25 years after the canal was returned to Panama by the US – the waterway faces renewed intimidation from an American president.
US President Donald Trump in his inaugural address on Monday vowed to wrest the canal back. “We have been treated very badly from this foolish gift that should have never been made and Panama’s promise to us been broken,” Trump said, claiming that Panama overcharges the US Navy to transit the canal.
“Above all China is operating the Panama Canal,” Trump also said, a frequent claim he has made without providing any evidence. “And we didn’t give it to China, we gave it to Panama and we are taking it back!”
Panamanian officials have scoffed at Trump’s latest claims that the country charges too much for ships to transit the canal or that China secretly has taken control of the waterway.
Still, his threats are not taken idly by Panamanians who consider the canal to be central to their national identity and depend on lucrative canal traffic. In 2024, the canal earned nearly $5 billion in total profits. According to a study released in December by IDB Invest, 23.6% of Panama’s annual income is generated from the canal and companies that provide services related to the canal’s operations.
Panama has also experienced several US military interventions over the years.
“All he [Trump] needs is to land ten thousand troops and that’s it,” said Ovidio Diaz-Espino, who was born in Panama and is the author of “How Wall Street Created a Nation: J.P. Morgan, Teddy Roosevelt, and the Panama Canal.” He added: “We don’t have an army.”
How the US imposed a canal on Panama in the first place
In 1903, Panama was a restive department of Colombia, with many Panamanians advocating openly for independence from a central government on the other side of the impassable Darien Gap jungle that they felt neglected them. Colombia, though, had little interest in letting go of the strategically located territory.
For generations, outsiders had considered the narrow isthmus to be the perfect spot for a trans-oceanic canal that would shorten the sea voyage by thousands of miles. Ships would no longer need to circumnavigate South America, braving the treacherous waters off Cape Horn. But the actual excavating of “the Big Ditch,” as it became known, was far more challenging than any undertaking previously attempted.
A French attempt to build a canal in the 1880s was met with disaster after scores of workers died from yellow fever and malaria amid allegations of financial mismanagement. The attempt, led by the famed developer of the Suez Canal Ferdinand de Lesseps, all but bankrupted France.
Failing to reach terms with Colombia to build a US canal, then US President Theodore Roosevelt sent gunships to Panama’s Atlantic and Pacific coasts to support calls for Panamanian independence. But celebrations in Panama after declaring independence were short-lived; public opinion in the new nation soured quickly over a treaty signed with the US that granted Americans open-ended use of the future canal.
Panamanians accused their envoy to the US, French engineer and soldier Philippe-Jean Bunau-Varilla, of betraying their interests to make a fortune from the deal he cut with the US. But dependent on the US to protect their freedom from Colombia, Panama’s hands were tied.
The US imported workers to build the canal from across the Caribbean. An ingenious system of locks designed by the US Army Corps of Engineers raised ships from ocean level to Gatun Lake, the largest man-made lake at the time, where they could cross the isthmus.
The final explosion that flooded the canal was triggered from the White House via telegraph in 1913 by then-President Woodrow Wilson. “Canal is opened by Wilson’s finger,” read the headline in next day’s New York Times.
The US-controlled canal quickly became a vital asset for American commerce and the US Navy.
Panama received a $10 million initial payment from the US for the territory followed by $250,000 each year. Many Panamanians resented that the canal that divided their country in half was off limits to them.
“It was colonialism. The country was divided in two and you couldn’t even go inside,” said author Diaz-Espino of the Canal Zone. “They had everything. They had golf courses, they had recreation centers and at the other side of the fence was Panama.”
Tensions steadily rose until January 1964 when riots broke out after demonstrators entered the off-limits Canal Zone and tried to raise the Panamanian flag there. Twenty-two Panamanian students and four US Marines died in the fighting that ensued.
For 13 years, US and Panamanian officials discussed a plan to return the canal to Panama during both Democrat and Republican administrations. Finally, in 1977, then-President Jimmy Carter reached an agreement with then-Panamanian strongman Omar Torrijos for the US and Panama to jointly administer the crucial waterway, with the canal being fully turned over to Panama at midnight on December 31, 1999.
“Fairness and not force should lie at the heart of our dealings with the nations of the world,” Carter said at the signing ceremony for the accords.
But the final agreement still gave the US the right to intervene militarily to keep the canal open – a condition that could potentially be exploited by Trump in an attempt to retake the canal by force but unlikely to meet legal scrutiny as the canal continues to see record traffic.
The lucrative Panama Canal
In 2007, Panama began work on the canal’s largest expansion in nearly a century, a new set of locks that would allow larger ships – more than one and a half times the size the ships that previously transited the waterway to travel through the canal. The new locks cost Panama more than $5 billion and went into operation in 2016. They also more than doubled the marine traffic the canal could handle.
The expanded canal has reaped billions of dollars for Panama and helped the country become a rare bastion of stability in Central America where other nations are beset by poverty and violent drug trafficking that fuel migration to the US.
And its success has been noticed. “Panama is doing so well with the canal, there are many workers, there is so much employment,” Trump said in 2011. “The US foolishly gave the canal for nothing.”
Panama officials have made clear they would not stand for any attempt to seize the lucrative waterway, which about 5% of all global maritime traffic passes through. “I fully reject the insinuating words by President Donald Trump at his inaugural address relating to Panama and its canal,” Panama’s President José Raúl Mulino said on X on Monday. “The canal is and will remain Panamanian and its administration will remain under Panamanian control with respect to its permanent neutrality.”
But the specter of another US intervention has alarm bells sounding from a country that depends on both its namesake waterway and on good relations with Washington.
“The Panama Canal is our oil, and this is as if you’re threatening to take oil from Saudi Arabia, to take away the oil wells,” said Diaz-Espino. “This would be devastating to the country. We’d be left with the debt and without the income.”