Why Australia should listen to Donald Trump about the Panama Canal

The Panama Canal is increasingly becoming a core – and unexpected – component of Donald Trump's foreign policy. The U.S. President has threatened to "take back" the vital waterway and accused China of interfering in its operations.

The Panamanian government has strongly denied claims that China is exerting undue influence over the century-old waterway. However, after a meeting with U.S. Secretary of State Marco Rubio last weekend, Panamanian President Jose Raul Mulino announced that the Central American nation would no longer participate in China's "Belt and Road" initiative, a major infrastructure agreement.

So, what is the Panama Canal? Why is it so important? And what would turmoil in the region mean for Australia? Here's what you need to know. The Panama Canal opened in 1914, was built by the United States, and was controlled by the U.S. until a 1977 agreement stipulated its eventual transfer to Panama.

The 80-kilometer-long canal was jointly operated by the two countries until 1999, when the Panamanian government gained full control. Currently, about 6% of global maritime trade and 40% of U.S. container traffic pass through this artificial waterway.

Trump has accused Panama of charging the U.S. "too much" to use the canal and has suggested that China's influence over the critical waterway is growing. He has also hinted that the U.S. should retake the Panama Canal. Australian maritime security expert Jennifer Parker told 9news.com.au that while the U.S. President's comments are unfounded, he has reason to be concerned.

"They (the U.S.) do have treaties with Panama, including a neutrality treaty, and they have reason to be concerned about Chinese influence in Panama." She pointed out that two companies from mainland China and Hong Kong already control significant port operations at the canal. One of these companies, Hong Kong-based Hutchison Whampoa Limited, holds concessions to operate the ports of Balboa and Cristobal, the canal's main Pacific and Atlantic entrances, respectively.

Under Chinese law, companies, including those based in Hong Kong, may be compelled to assist the central communist government. "Due to the national security law passed in 2020, the Chinese government, if it chose to do so, could exert a lot of influence over a Hong Kong-owned company. This could include intelligence gathering. This means that even if China doesn't have direct control of the Panama Canal, it still has significant influence at its Pacific and Atlantic entrances."

Trump's complaints about slower transit times for U.S. Navy ships through the canal are due to drought-induced water level declines, which are unrelated to China.

Parker said that although only a small amount of Australian maritime trade passes through the Panama Canal, disruptions to the waterway would have an impact on the price of goods in Australia. She noted that attacks on cargo ships by Yemen's Houthi rebels, which disrupted Red Sea maritime trade last year, had flow-on effects for the Australian economy. In addition to some shortages of goods for Australian consumers, the Reserve Bank of Australia warned that higher freight costs contributed to inflation.

"Global trade is a globally interconnected system," Parker said. "That means that if you have a major disruption in one area, even if your direct trade might not go through that area, the changes that that disruption causes can cause blockages elsewhere."

Parker said the current debate about the Panama Canal is also a reminder of how Chinese state-owned and non-state-owned companies have influence or ownership in important infrastructure in the Pacific and other parts of the world. "This really enables them to control key infrastructure and trade outcomes."