The Panama Canal has recently faced significant challenges, including severe drought conditions and the impacts of extreme weather phenomena such as El Niño. However, the ongoing trade war initiated by President Trump also poses a substantial threat to this crucial global trade route. Serving as a vital passage for U.S. East Coast-bound ocean freight traffic, the canal could experience a decline in business due to Trump’s tariffs on China, which have led to reduced orders for manufactured goods from U.S. shippers. Every year, approximately 40 percent of all U.S. container traffic passes through the Panama Canal, accounting for around $270 billion in annual cargo.
Both the U.S. and China are the primary users of the canal, and the importance of this waterway has grown in recent years amid disruptions in global supply chains. Last year, despite the adverse weather conditions, the Panama Canal Authority recorded a revenue of $3.38 billion, a consistent increase since 2017. The uncertainty surrounding the trade conflict and the significant tariff imposed on Chinese imports has resulted in a dramatic reduction in U.S. imports from China. Reports from supply chain intelligence show that blank sailings, or canceled freight journeys, from China to the U.S. have surged by 300% since the announcement of the tariffs.
While West Coast ports have already begun to feel the impact, East Coast ports are expected to experience rising challenges as manufacturing downturns in China lead to fewer shipping containers for carriers. The repercussions for the Panama Canal are evident, as revenues depend heavily on vessel transits and cargo movement. Boris Moreno, vice president of operations for the Panama Canal Authority, noted that a global recession or economic slowdown in the U.S. would inevitably affect the canal’s operations. Moreover, recent tensions between the U.S. and China have led to claims that the canal’s operations may be influenced by China, a notion denied by both Chinese officials and Panamanian authorities.
U.S. politicians have expressed concern over Panama’s growing ties to China. Notably, discussions regarding investments in port infrastructure within the canal have emerged, with U.S.-based firms exploring potential acquisitions, which adds another layer to the ongoing geopolitical developments surrounding this critical global asset.