The choice of Panama for the US Secretary of State, Marco Rubio’s first overseas trip reflects the growing geopolitical and economic stakes linked to the Panama Canal. The canal faces challenges from climate-induced water shortages and China’s growing regional influence. Severe drought, worsened by El Nino, has forced transit restrictions, disrupting supply chains and raising costs. Chinese investments in Panama’s ports fuel US strategic concerns. President Trump’s withdrawal from the Paris Agreement, the suspension of US foreign aid, and calls to reassert US ownership of the canal, introduce new uncertainties. The Rubio visit signals that the US still recognises the canal’s importance. Although climate-related economic investments are not currently on President Trump’s agenda, they have the potential to help the US maintain influence over its critical trade routes, support Panama’s development without increasing Chinese dependency, and secure its strategic regional interests, all while staying true to “America First” priorities.
THE STRUGGLING PANAMA CANAL: WATER CRISIS AND GLOBAL TRADE IMPLICATIONS
The Panama Canal, responsible for about 5% of global trade, currently faces dangerously low water levels due to insufficient rainfall and the influence of El Nino. The canal is dependent on freshwater from Lake Gatun, and the ongoing drought has prompted the Panama Canal Authority (PCA) to impose water-saving measures, including reducing the number of ships passing through each day and restricting cargo weight. These restrictions create significant challenges for US LNG and grain exports as well as other industries dependent on the canal, leading to higher costs, supply chain disruptions and potential impacts on the competitiveness of US exports in global markets
This situation highlights a critical vulnerability for global trade, especially for the US, which relies on the canal for 40% of its East-West coast of the Americas container traffic. Shipping companies have reported disruptions, with delayed shipments affecting everything from food to textiles. These disruptions further underscore how water scarcity at the Panama Canal could escalate trade costs and cause more severe delays as cargo is rerouted through alternative, longer routes.
While the US exit from the Paris Agreement will upend international climate goals, the effects of the US exit on the Panama Canal will be more indirect at best.
A more immediate issue is the suspension of US foreign aid in recent weeks, which has historically supported programs critical for Panama’s environmental management. These funds have been used to maintain the Chagres River Basin, which provides 45% of the water necessary for Panama Canal operations. The potential loss of these funds could directly exacerbate the water shortage and undermine efforts to preserve the water sources vital for both the canal and Panama’s urban water supply. This situation puts pressure on US strategic interests in Panama, particularly in maintaining unimpeded access to the Panama Canal, a crucial conduit for US maritime trade.
GEOPOLITICAL AND ECONOMIC CONCERNS: CHINA’S ROLE AND US INTERESTS
Beyond the environmental concerns, the geopolitical consequences of climate change at the Panama Canal should not be ignored. China’s growing economic footprint in Latin America, particularly in Panama, with investments in port operations near the canal, raises alarms in Washington about the long-term implications of China gaining control over vital infrastructure.
Yet, while China’s economic interests and influence in Panama are expanding, the assumption that China controls the canal itself is an oversimplification. The canal is operated by the Panama Canal Authority (PCA), a government agency, and China’s investments are in port operations not the canal locks or its operations. Furthermore, Panama is a sovereign nation with significant economic and political leverage due to its control over a vital global trade route. This leverage allows Panama to negotiate favourable terms for canal transit fees, attract investment from both the US and China, and maintain its neutrality in the US-China rivalry. However, this leverage is not absolute. Both the US and China hold significant economic and political influence, and Panama must carefully navigate its relationship with both powers to maximise its own interests.
Rather than focusing exclusively on China’s potential dominance, the US should recognise that Panama’s growing ties with China are part of a broader trend of Latin American countries diversifying their international relationships. The US should also consider its own diplomatic and economic engagement in the region, building alliances that are not solely focused on competition with China but rather on mutual development, including sustainable infrastructure projects to combat the effects of climate change.
THE PANAMA CANAL AUTHORITY’S (PCA) RESPONSE: SUSTAINABILITY MEASURES AND LONG-TERM PLANNING
The PCA has been proactive in addressing the current water crisis by implementing various sustainability initiatives. For instance, the Authority has invested in more water-efficient locks and developed methods to reuse water in the canal’s lock chambers, saving millions of gallons daily. Additionally, the Authority is considering a major project to build reservoirs by damming the nearby Indio River to supplement the canal’s water supply.
While these efforts are commendable, it’s important to critically assess the feasibility and long-term impact of these measures. The PCA plans to allocate USD 2 billion towards the implementation of a more robust water management system in addition to an ambitious USD 8.5 billion investment plan, and it’s reasonable to expect that the entire process, from planning to full operationalisation, could take a decade or more. In the meantime, the canal will continue to face seasonal droughts, with the risk of further trade disruptions and economic losses. Moreover, while desalination could help address some of the water shortages, it is an energy-intensive process, which could add new challenges in terms of both costs and environmental impact.
These sustainability efforts highlight the need for collaborative global solutions to ensure the canal’s viability. The US could play a key role by providing technical expertise, financial support, or other forms of facilitation to Panama in addressing these challenges.
RETHINKING CLIMATE POLICY AND US INTERESTS IN THE PANAMA CANAL
The US withdrawal from the Paris Agreement limits its role in some international climate forums but still allows room for effective bilateral cooperation with Panama. The US can establish agreements focused on sharing expertise in climate-resilient technologies, implementing renewable energy and water conservation projects, and offering technical assistance to Panamanian institutions. The US private sector can invest in sustainable technologies like renewable energy and water treatment, partnering with Panama on innovative climate solutions. Additionally, US states, cities, and NGOs can advance grassroots climate cooperation, exchanging knowledge and developing localised solutions.
This approach aligns with President Trump’s “America First” policy by prioritising US economic and security interests. Climate resilience projects in Panama protect vital trade routes like the Panama Canal, crucial for US commerce. US companies benefit from investing in renewable energy and infrastructure, creating economic growth and innovation. Engaging with Panama on shared interests strengthens American interests in economic stability, security, and regional influence while staying true to the “America First” agenda.