INCOMING INTEL - 12/22: Trump's Canal Crusade: Demanding a 'Big Ditch' Deal

President-elect Donald Trump recently made controversial statements regarding the Panama Canal, suggesting his administration could attempt to regain control of the waterway. Trump slammed the fees charged by Panama as "ridiculous" and "unfair." He also promised that "this complete rip-off of our country will immediately stop," threatening to return the canal to U.S. control if Panama does not reduce its fees. Trump made these comments both on his Truth Social platform and during a speech at Turning Point USA's AmericaFest in Arizona.

The U.S. relinquished control of the Panama Canal to Panama in 1999, following a 1977 treaty signed under President Jimmy Carter, a decision Trump has called "foolish." He also expressed concerns about potential Chinese influence over the canal, though China does not control or administer it.

Trump's statements have drawn criticism from Panamanian politicians, who have called on their government to defend the country's autonomy. The Panamanian embassy in Washington did not immediately respond to requests for comment. Trump's remarks align with his broader "America First" approach to foreign policy and trade, which he has signaled will continue in his upcoming term. However, it remains unclear how Trump would legally or practically attempt to regain control of the canal.

Analysis: The Panama Canal remains a critical asset for the U.S. economy, with the East and Gulf Coasts particularly reliant on it for trade. Approximately 14% of U.S. seaborne trade passes through the canal, with U.S. commodity exports and imports accounting for 73% of canal traffic, representing about $270 billion in cargo. The canal's strategic importance has only increased amid global supply chain disruptions and U.S. calls for nearshoring. It offers economic benefits by shortening shipping distances and potentially reducing transportation costs for U.S. businesses and consumers. The canal's 2016 expansion allowed larger vessels to transit, increasing efficiency and prompting investments in U.S. port infrastructure.

The Panama Canal is also crucial for global trade, allowing up to 14,000 ships to cross annually and accounting for 2.5% of global seaborne trade. For Panama, the canal contributes significantly to its economy, generating about 6% of its GDP and $2.5 billion in direct contributions to the national treasury in fiscal year 2022. However, recent drought-induced restrictions on canal transits could reshape seaborne trade flows, potentially increasing transport costs and journey times for ships that may need to use alternative routes. Despite these challenges, the Panama Canal continues to play a crucial role in global maritime transportation, serving as a vital link between the Atlantic and Pacific Oceans and contributing to the reduction of carbon emissions in global shipping.

Implications: President-elect Trump's recent statements present significant strategic implications for U.S. companies. Trump's threat to retake the canal could potentially disrupt a vital trade route, impacting supply chains, shipping costs, and delivery times for U.S. businesses. This rhetoric may lead to diplomatic tensions, economic uncertainty, and potential retaliatory measures from Panama or its allies, affecting U.S. commercial interests in the region.

Furthermore, Trump's comments signal a possible shift in U.S. foreign policy towards Latin America, with potential implications for Chinese investments in the region and trade realignments. U.S. companies with operations or investments in Panama may face regulatory uncertainty, including changes in bilateral agreements and increased compliance requirements. The resulting market volatility could affect currency exchange rates, stock prices of companies reliant on the canal, and commodity prices. In response, U.S. businesses should closely monitor these developments, assess their exposure to Panama Canal-related risks, and develop adaptive strategies, including diversification of supply routes and contingency planning, to navigate potential changes in the global trade landscape.