News / Panama gives in as US pressure on Panama Canal intensifies

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Under increasing US pressure, Panama has elected not to renew its belt and road (BRI) deal with China and will also allow toll-free transits to American warships.

Following the first overseas trip by US secretary of state Marco Rubio (above), Panama’s President Jose Raul Mulino said the BRI agreement with China, which expires in two to three years, would not be renewed.

And US Navy vessels will now no longer pay $5.50 per displacement ton when transiting the canal.

Mr Mulino is also said to be considering reviewing a 25-year concession with Hutchison Port Holdings. The Hong Kong-based terminal operator is under fire from the US over alleged links to the Chinese government. Hutchison and Panama renewed a 25-year concession for Balboa, at the western entrance, and Cristobal, on the Atlantic side, in 2021.

“Yesterday’s announcement that Panama will allow its participation in the CCP’s Belt and Road Initiative to expire is a great step forward for US-Panama relations, a free Panama Canal, and another example of @POTUS leadership to protect our national security and deliver prosperity for the American people,” Mr Rubio said on social media yesterday.

A fortnight ago, Mr Trump posted on his social media site, Truth Social, that “American ships… and that includes the United States Navy” were treated “unfairly” by the Panama Canal authority.

Some days later, Republican senator Ted Cruz claimed China was poised to block the Panama Canal to spite the US, using the Hutchison-operated entrance ports as “outposts”.

With warships being granted free passage – in breach of a treaty drafted under the Carter administration in 1979 – the question is what other US vessels the president had in mind.

Around 40% of US-bound container traffic transits the Panama Canal – and destined for US ports, it is almost all carried on non-American vessels.

The US-flag merchant fleet fell from 282 vessels in 2000 to just 185 in 2024. By contrast, the Liberian Registry, a flag of convenience run from Vienna, Virginia, has more than 4,000.

With the exception of an occasional tanker, Jones Act ships generally avoid the Panama Canal. Employing a highly paid US crew on a US-built ship, a canal transit to carry cargo from one seaboard to another – including time queuing – would be regarded as ruinously expensive by most companies.

Attention has also focused on US LNG exports and the use of the Panama Canal. However, recent research by S&P found that in July 2024, some 49 LNG carriers exporting US gas preferred to travel to Asia via the Cape of Good Hope. Only one Asia-bound LNG carrier went through the canal that month, the Attalos – flagged in Malta.

Nonetheless, the question remains whether Mr Trump is referring specifically to US-flagged ships, and will therefore seek to have fees waived for the few Jones-Act vessels that may ply the route, or will embrace a Houthi-like definition of “American ships” – vessels with US citizens involved in the ownership structure, or even carrying cargo bound for the US.