The dilutive artery: how can the US reduce China's influence on the Panama Canal

The transfer of the Panama Canal to the US zone of influence will affect international trade — Washington will be able to impose increased tariffs and special conditions for the passage of ships, experts interviewed by Izvestia believe. China, with which the United States has already entered an active phase of the trade war, will suffer the most in this situation. In an effort to reduce the influence of China, which, according to Washington, controls the channel, the head of the Pentagon arrived in Panama. Pete Hegseth, at a meeting with President of the Republic Jose Raul Mulino, discussed the restoration of ties in the fields of defense and security. Whether the United States will be able to regain control of the transport artery and what other consequences there may be is in the Izvestia article.

The Pentagon wants to reduce China's influence on the Panama Canal

The need to return the Panama Canal to the US zone of influence, which Washington controlled until 1999, has become one of the main priorities of the Trump administration in relation to the Latin American region. This is confirmed by a series of visits by officials from the States. In early February, US Secretary of State Marco Rubio visited Panama, and the other day Pentagon Chief Pete Hegseth flew there — no head of the American defense department has visited Panama in the last couple of decades.

"Chinese companies continue to monitor critical infrastructure in the canal area. This gives the PRC the opportunity to monitor what is happening in Panama. This makes Panama and the United States less secure, less prosperous, and less sovereign. And, as President Donald Trump noted, this situation is unacceptable," Hegseth said after meeting with Panamanian President Jose Raul Mulino.

Curiously, against the backdrop of the United States' determination to regain the canal, Hegseth simultaneously emphasized Panama's sovereignty over it. In order to reduce China's influence, back in mid—March, by order of the Trump administration, the Southern Command of the US Armed Forces developed several options for expanding its presence in the Latin American state, from strengthening military cooperation with the Panamanian Armed Forces to forcibly seizing the channel. Moreover, the likelihood of the latter scenario being implemented depends on the willingness of the Panamanian side to deepen bilateral partnership between the military departments.

Earlier, in private conversations with his advisers, Donald Trump had repeatedly stressed the need to strengthen the US military presence in Panama — to make sure that American soldiers were "visually visible" in the canal zone in order to demonstrate their strength in this way. Currently, there are about 200 soldiers and officers of the US Armed Forces in the Latin American state, including special forces.

— The task of the United States is to strengthen control over the Western Hemisphere. It is obvious that in the case of Panama and Latin America in general, the United States intends to reduce the influence of Russia and China in the region," said Konstantin Blokhin, a researcher at the Center for Security Studies at the Russian Academy of Sciences, an American scholar.

At the same time, in the case of Panama, the United States seems to be quite satisfied with its compliance. Since the beginning of the dialogue on the ownership of the canal, the United States has already managed to convince the authorities of the Latin American state to withdraw from the Chinese Belt and Road initiative, to which the country has joined since 2017. In addition, under pressure from Washington, the Panamanian authorities allowed one of the airports to be used to receive deported migrants.

— Panama has demonstrated its desire to negotiate with Washington, so an increase in tariffs on Panamanian exports is unlikely to occur. The duties against him are related to the need to put pressure on Panama to be more accommodating. And they will most likely accept Trump's terms without raising the tariff rate," Blokhin said.

The US administration imposed relatively small duties against Panama — 10%, although they have already begun to analyze them for compliance with the bilateral trade agreement of 2007 and assured that they will make every effort to exempt the country from tariffs. Nevertheless, the Ministry of Trade and Industry of the Latin American state notes that the United States is the main direction of Panamanian trade. So far, raw cane sugar, bananas, seafood and copper scrap have been supplied there without paying duties.

The transfer of the Panama Canal to the control of the United States will affect global trade

The United States has already taken the first step towards regaining control of the canal. As part of a recent deal with BlackRock, a large American investment company, together with Global Infrastructure Partners (GIP) and the Swiss fund Terminal Investment Limited, will acquire a controlling stake in two key ports from the Hong Kong conglomerate C. K. Hutchison Holdings — Cristobal (located at the entrance to the Panama Canal from the Atlantic Ocean) and Balboa (from the Pacific Ocean). ocean). The channel's administration clarified to Izvestia that these processes are outside their jurisdiction.

— The concession of ports, including procedures related to their purchase or sale, is the responsibility of the Government of the Republic. The Panama Canal does not interfere with asset management processes. The companies involved must comply with the legal and regulatory procedures established by the competent authorities in Panama, which are not directly related to the operation of the canal, the Panama Canal Authority told Izvestia.

The signing of the agreement between CK Hutchison Holdings and BlackRock was supposed to take place on April 2, however, the process was delayed — the State Administration of Market Regulation of China (SAMR) decided to study the deal more closely. SAMR intends to assess whether it will violate the rules and limit competition in China's domestic shipping market and in the international market.

— Donald Trump has repeatedly promised to return the Panama Canal to US control, as he considers it vital to America's economic interests. However, in reality, it is not so much about the physical seizure and control of the canal itself, as about the transfer of ports along the canal under the control of American companies," explains analyst Tigran Meloyan.

Having control over ports, unloading terminals and other infrastructure located along the Panama Canal, the United States may begin to inflate prices for services such as loading, unloading, refueling ships, as well as refuse service and create obstacles to the transportation of goods, the expert continues. Given the tense relations between the United States and China, Beijing is likely to suffer the most.

The United States has already decided to impose staggering duties of 104% against China. In response, Beijing announced that from April 10 it would raise its tariffs on American imports from 34% to 84% immediately. The Republic has also restricted the activities of a number of American companies on its territory and the export of some rare earth metals to the United States. Analysts characterize the tension in relations between Washington and Beijing as the beginning of a trade war.

— Perhaps the United States is trying to get the Panamanian government to take measures that will discourage countries like China from using the channel so actively. However, the Panamanian government probably won't want to do this, as it could interfere with the overall use of the channel and affect its profits. In addition, the Trump administration may use the situation as an excuse to interfere in Panama's affairs and try to regain control not only of the canal, but also of the country, American expert Jeremy Kuzmarov believes.

Such a policy on the part of the United States may encourage Chinese companies to use alternative transport routes, which in turn will affect the final cost of goods. In addition, experts say, the actions of the Trump administration could further fragment the global economy by dividing international trade into networks where some countries and routes are focused on the United States and others on China.