Trump threats ignite talk of alternatives to Panama Canal

(This analysis first appeared on Callaway Climate Insights, a partner of ClimateCrisis247).

PANAMA CITY (Callaway Climate Insights) — President Donald Trump’s threats to “take the Panama Canal back,” combined with climate change, have ignited a global debate over alternatives to the Canal, from building a new canal across Nicaragua, Costa Rica or Colombia to opening Canada’s fabled Northwest Passage.

When a consortium led by BlackRock BLK 0.80%↑ announced earlier this month it will buy China-based CK Hutchison’s ports on the Panama Canal, it lowered the tension between China, Panama and the U.S. However, while that tension has softened, the threats are still there. Indeed, Trump continued to threaten to take the Panama Canal back after BlackRock’s announcement.

It’s worth noting that the agreement between BlackRock and CK Hutchison is currently under investigation and must adhere to Hong Kong laws, Hong Kong leader John Lee said recently.

Worldwide, governments and investors continue exploring alternatives to the Panama Canal, which faces not only Trump’s actions but also climate change and drought issues.

Last year, El Niño weather patterns and global warming added to a drought surrounding the Panama Canal. The canal is fed by two freshwater lakes, and the level of those lakes has dropped six feet as a result of the drought.

Crossings on the Canal dwindled to as little as 18 ships per day in February 2024, down from an average of 38 per day. The ship traffic picked up due to an increase in rainfall last spring to an average of 22 ships per day, still way below its capacity.

Shippers need an alternative

“Trump’s threats have only exacerbated the climate change issues that made the Panama Canal vulnerable,” said Alexander Eslava, a Colombia-based port consultant who has conducted several studies on alternatives to the Panama Canal. “But as long as Trump is in power, everyone is afraid that the U.S. is never going to allow a canal to be built. He has already threatened to send the military to Central America.”

The Panama Canal handles $270 billion a year in oceanic trade, or 3% of global trade volumes and 46% of containers moving from Northeast Asia to the U.S. East Coast. The canal is Panama’s largest source of revenue at more than $4 billion per year.

A day after Trump threatened to take the Panama Canal back, Nicaragua’s National Assembly changed the country’s constitution, allowing the regime of Daniel Ortega to grant a concession to anyone to build an interoceanic canal.

Nicaragua is widely considered the best place to build a transoceanic waterway outside of Panama, though it would cost an estimated $50 billion.

Nicaragua previously was dealing with a Chinese businessman to build the canal but that fell through, and last November Ortega unveiled a new route to the Chinese. The 275-mile route would start from a port to be built in the city of Bluefields on the Mosquito Coast, pass through Lake Xolotlán and join the Pacific at Corinto. The recent legislation taken by the National Assembly means that anyone, including the U.S. and China, could build the canal.

Nicaragua canal would allow larger ships

“As of now, no one has shown interest in Nicaragua’s canal, except for the Chinese, and that’s because of Trump’s rhetoric to send the military before anyone begins digging,” Eslava said.

If the Nicaraguan Canal were to be built, it would reduce the number of ships crossing through Panama and it would also allow larger ships with a depth of up to 29 meters, compared to the 14 meters which is the maximum draft for passing through the Panama Canal.

Three other countries in the region have also expressed interest in building a canal or combination canal/railroad connecting the two oceans. Forty years ago, Colombia proposed to build a canal through the swamps of the Darien Gap near the Panama border, but it was ruled out in part because it would destroy the region’s environmentally sensitive ecosystem.

Mexico and Costa Rica have proposed a Canal Seco, which would connect ports on the Pacific to either the Gulf of Mexico or the Caribbean via railroads and upgraded ports.

The Costa Rican route has drawn interest from the Saudi Arabian government, which estimated that a route could be built for as little as $10 to $15 billion.

Still, all routes have run into roadblocks, including from environmentalists and costs.

Northwest Passage opens up, but at a cost

Another alternative route, which has opened up recently due to climate change, is the fabled Northwest Passage across the top of Canada. Since the 1600s, European explorers and most recently the Russian and Chinese have endeavored to cross from the Atlantic to the Pacific, to no avail because they were trapped in ice.

By melting the arctic sea ice, global warming has led to a growth of shipping through the Northwest Passage and the Northern Sea Route. Since 2007, both the Northwest Passage and Northern Sea Route have been temporarily ice-free. That means that many ships, especially the Northern Sea Route, can make this passage when the weather is ripe. The problem is that the global melt has led to numerous icebergs which have broken off the arctic ice. In the Northwest Passage, the navigable period in the Eastern Beaufort Sea, at the eastern edge of the passage, shrunk from 27 weeks in 2007 to 13 weeks in 2021, a new study published in the journal Communications Earth and Environment.

Even so, traveling all that way takes many days and consumes gas and manpower, while the Panama Canal is a much less expensive way.

Clearly, if the status quo and no alternative to the Panama Canal is built, droughts and global warming will doom the Panama Canal, Eslava said. “Panama has a lot of long-term problems with climate change and those are not going away. Among others, Panama has to reforest the region.”

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