Trump’s Tariffs and BlackRock’s Panama Canal Ports Deal: A New Era for Global Trade
By Bella Madrid
The Panama Canal, a vital facilitator for global commerce, handles approximately six percent of global maritime trade and services over 144 routes across 150 nations. 72% of ships passing through the Canal are coming from or going to US ports. This year, the canal has become a geopolitical hotspot amid the escalating trade war between the United States and China. The Canal, and the key place it holds in the US trade ecosystem, is a focal point for the Trump administration’s foreign policy goals.
History of the Panama Canal
The Panama Canal is one of the most impressive engineering feats of its time. Built in 1914, the Canal facilitates global trade by connecting the Atlantic and Pacific oceans. After Colombia refused to sell the land to the US, the US backed Panama’s revolution to independence from Colombia. In exchange for US support, the US received the rights to build the canal. The Panama Canal was also tied to a new constitution that gave the US government the right to “intervene in any part of Panama to reestablish public peace and constitutional order.” In December 1999, nationalist protests triggered growing security threats in the region. The US returned the canal to Panama due to a shift in U.S. foreign policy towards decolonization. However, the US kept the right to invade the canal by force if its operation was threatened due to conflict, but with limits on their power to reassert possession.
US foreign policy hasn’t changed much over the years in Latin America. Most presidents have used the Monroe Doctrine to justify policy that violates sovereignty or at the very least exacerbates colonialism. The Monroe Doctrine was announced by President James Monroe in 1823. He declared that the United States would view any attempts by European powers to colonize or interfere in the Americas as a hostile act and in return the US wouldn’t interfere in the internal affairs of Europe. The Monroe Doctrine established the Western Hemisphere, including Latin America, as a sphere of influence for the United States. Since then, the US has had a tight control in Latin America through military force and now through private equity.
Even today, the Monroe Doctrine is still referenced in political discussions regarding the canal. Trump referenced the doctrine in his 2018 speech to the United Nations, calling Latin America “their backyard.” These comments were made in response to Chinese efforts to expand the Belt and Road Initiative into Panama. These competing forces highlight how economic issues very easily can become politicized, potentially entrenching regions in a modern-day form of colonialism.
Trump’s Tariff Trade War
On April 9, President Trump announced a dramatic increase in tariffs on Chinese imports, raising them to 125%, which China retaliated with a 85% tariff on US goods. These measures have intensified the ongoing trade war, and global supply chains are bracing for disruptions. This tumultuous era marks a shift away from long-standing tactical trade disputes between the two global trade players to strategic economic warfare. Both nations are willing to absorb short term pain for long term dominance, catching smaller economies in the crossfire.
JP Morgan’s CEO Jamie Dimon warns that such high tariffs could exacerbate inflationary pressures in the US, raise costs for consumers, and slow global economic growth. Dimon, along with several other Wall Street CEOs, have been very vocal about recessionary risk as the S&P plummets and Apple reaches an all time low with losses at $638 billion dollars in value.
The Panama Canal plays a pivotal role in this trade war. Approximately 40% of US trade passes through the canal, making it a critical point for goods moving between the Atlantic and Pacific Oceans. Any disruption to operations at the canal–whether due to geopolitical tensions or tariff-induced shifts in trade routes–could drastically impact global markets. Multinational corporations, such as Amazon and agricultural businesses, risk higher transport costs. Taking the longer route around the southern tip of South America increases shipping times by 30 to 50 days. For example, a drought affecting the Panama Canal forced CHS Inc, a fertilizer and grain company, to reroute. They spent about 30% more time and 30% more fuel, making every extra day at sea cost about $30,000.
BlackRock’s Strategic Acquisition
BlackRock has emerged as a key player among these tensions. The US-based asset management firm acquired a 90% stake in the Cristobal and Balboa ports in the canal for $23 billion USD from Hong Kong private company CK Hutchison Holdings. These ports are some of the most strategically placed in the whole canal at each end. They are not only influential, but a symbolic stronghold in facilitating trade through the canal. BlackRock CEO Larry Fink denies being influenced by the Trump administration, which has been vocal about China having an unacceptable amount of control of the canal. Fink argued that the investment was severely undervalued–despite looming tariffs. Fink and his firm was in close communication with the Trump administration during the deal, only going ahead after the administration gave BlackRock a final blessing.
Secretary of State Marco Rubio paid a strategic diplomatic visit to Panama earlier this year, affirming the US’ renewed interest in Latin America. Shortly after Rubio’s visit, an audit was called on Hutchinson’s contract with the Panama government over the ownership rights of the Panama Canal. Li Ka-Shing, owner of CK Hutchison Holdings, decided to avoid political entanglement by selling CK owned ports. Michael Corbat, Li’s close advisor and friend of Larry Fink, flew out to New York to hear several pitches, eventually closing with BlackRock. Li faced backlash from the Chinese government after this decision, with all Chinese state-owned entities ordered to halt business with all of Li’s family-owned businesses. The date of the deal signing passed with no announcement until April 8th when the recent audit brought to light 300 million worth of fees owed to the Panama government hidden by tax-exempt subcontractors hired by Hutchinson. Additionally, the deal was scrutinized by China’s antitrust regulator, who called for a review to “protect fair competition and safeguard public interest.” Perhaps Chinese pushback demonstrates how strategic this transaction might be.
Panama and China
Balancing diplomatic relationships with the US and China remains a major challenge for Panama. The Canal contributes 7.7% of Panama’s total GDP, representing an important part of Panama’s export economy and trade flow. Lack of domestic technology and human capital has made the Panamanian economy reliant on a few raw exports, such as copper ore.
Key global manufacturers like China demand copper to produce value-added goods, such as cars and electronics. Panamanian demand for diverse, value-added goods has led to unfavorable trade terms. Panama lacks internal infrastructure to manufacture value-added goods, which makes them even more vulnerable to disruptions in global trade flows. Economic dependence has subjected Latin American economies to world superpowers such as China and the US for decades. This means that Panama is going to have to pick a side quickly when it comes to granting access to the Canal.
China has become a competitive investment partner in Latin America through their Belt and Road Initiative. Panama has enjoyed a peaceful, yet reliant, relationship with China after cutting diplomatic ties with Taiwan in 2017. China continues to invest heavily in infrastructure projects in the region, including a $1.3 billion contractual port terminal, expanding the Chinese Belt and Road project into the western hemisphere. Many believe the Belt and Road iInitiative–a Chinese attempt of a modern Silk Road through ports and railways–is a “Trojan Horse” for China-led regional development and military expansion. However, Panama recently withdrew from the agreement under pressure from Washington–a move that reflects Panama’s growing reliance on U.S. support at the expense of bilateral relationships with China.
Geopolitical and Economic Ramifications
Panama Canal access has implications for the global geopolitical climate. The Trump Administration has framed CK Hutchison’s port sale to BlackRock as an American victory over China in the broader goal to “reclaim” economic control over the region. While Panama retains sovereignty over the canal, its shift in port management is likely to tilt geopolitical alignment to Washington.
This alignment raises tensions in the US-China trade war, with potential preferential pricing policies that could provoke retaliatory measures from China. A drought in 2023 lowered the volume of goods allowed to pass through the canal and raised canal fees. However, it is predicted that traffic through the canal will start to rise rapidly throughout the year, and it is no surprise the U.S. isn’t going to let China control canal fees.
Conclusion
Trump’s tariffs and BlackRock’s acquisition highlights how corporate strategy and economic policy are re-shaping today’s global trade. As tension’s rise in this trade war, the Panama canal remains a critical point for commerce and a symbol for greater geopolitical competition. Whether either country will escalate to military action remains uncertain, but tensions have never been higher for this key waterway.
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Bella Madrid is a sophomore at New York University double majoring in business and political science. She is interested in all things Latin America, specifically politics, current events, and financial markets. In her free time, she loves to travel, surf, and explore the outdoors.
