How Trump’s Panama Canal threat could reshape the automotive supply chain

US president Donald Trump claimed that the Panama Canal is operated by China, and that America will “retake” the waterway, in his inaugural speech - if it happened, it could have huge implications for the automotive supply chain globally. 

“China is operating the Panama Canal, and we didn’t give it to China,” Trump said on his first day of the presidency. “We gave it to Panama, and we’re taking it back.” 

As mentioned in our coverage of the inauguration and what it signals for the North American automotive supply chain, it is not accurate that China operates the canal, although Chinese companies are involved in port operations. The Panama Ports Company is owned by Hong Kong firm CK Hutchinson Holdings and manages two large container terminals on the canal.

Read more: Trump’s inaugural speech and threats to the supply chain

Panama has owned and operated the canal through the Panama Canal Authority since 1999 when the US handed over control as part of the Panama Canal Treaty. In December, the Panama Canal held a ceremony to celebrate the 25^th anniversary of the transfer of the waterway to the Panamanian Administration, where the Panama Canal Administrator Ricaurte Vásquez Morales said: “During three different administrations we have worked under a common objective to guarantee a safe and continuous operation of the canal for the world. First, we demonstrated the capacity of Panamanians to manage it, then we reaffirmed our commitment to the expansion and construction of the third set of locks. We could not be left behind.”

In response to Trump’s allegations, the Panamanian authorities have announced an audit of Panama Ports Company.

Understanding Trump’s claims and his potential next steps

Since Trump’s inaugural claims, Trump-supporting senators have introduced a resolution urging Panama’s government to cut ties with Chinese businesses and cut alleged ties with China.

The resolution is non-binding, meaning no immediate changes will have to be made. Panama’s president Jose Raul Mulino has denied Trump’s claims of Chinese ownership and added that the Panama Canal “belongs to Panama and will continue to belong to Panama”. China also denies operating the canal. Russia’s foreign ministry has also weighed in, warning the US against trying to reclaim it.

It’s not yet clear how Trump plans to “retake” the canal, but any disruption of trade through the waterway would have implications on the global supply chain.

The impact of disruption on the Panama Canal to automotive logistics

The Panama Canal is in a strategic location for global trade, particularly in recent months as the Suez Canal has been largely unavailable to vessels due to hijacking incidents in the Red Sea. Although a ceasefire has now been called, some shipping firms are hesitant to return to the area, prompting Egypt’s government to actively encourage a return to the waterway.

The impact of a disruption at the Panama Canal would be felt heavily by the automotive supply chain, not just in North America but globally. In fact, we have seen just how important the route is to automotive logistics in recent years, when a drought on the canal impacted shipping operations for months. The drought meant deliveries were missed and delayed for many automotive companies, and it even prompted container shipping line Maersk to change its services and opt for a ‘land bridge’ to mitigate disruptions at the start of last year.

Alongside Trump’s other threats to the supply chain, including a potential trade war with Mexico and Canada, the automotive supply chain could be set for a turbulent year.