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Trouble at the Panama Canal

The former American zone has turned dystopian, and now China is making moves.

PANAMA-CHINA-VARELA-XI
Credit: LUIS ACOSTA/AFP via Getty Images

This summer, hundreds of ships backed up at the Panama Canal, leading the Panama Canal Authority (ACP), a semi-independent organization whose board of directors is selected by various branches of the Panamanian government, to restrict travel in the critical global trade artery through which 40 percent of all U.S. container traffic travels annually. The culprit of this global commerce crisis, so the media narrative goes, was low water levels linked to El Niño and climate change. But talk to enough of the approximately 30,000 U.S. citizens living in Panama and you’ll hear mention of another factor: Panamanian corruption and incompetence. 

Given Panama’s embarrassing history of financial crime, that should not be surprising. The country has twice been on the “gray list” of the Financial Action Task Force, an intergovernmental organization founded in 1989 to combat money laundering. In 2016 the “Panama Papers” leak revealed the country as a locus for money laundering and illicit finance. And in May of 2023, Canal Minister Aristides Royo requested the resignation of ACP board of directors member Jorge Gonzalez, provoking speculation regarding the latter’s corrupt relationship with a major Chinese state-owned enterprise doing business related to the canal.

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“We built a thing called the Panama Canal,” Donald Trump told Tucker Carlson in an August interview. “We lost 35,000 people to the mosquito…. We sold it for one dollar. China now controls it. They actually control the Panama Canal.” The claim that China “owns” the canal is hyperbolic, but it’s true that Chinese companies have for years heavily invested in infrastructure-related contracts in and around the canal, as the Center for Strategic & International Studies explained in a 2021 report. “There’s five…Chinese state-owned enterprises along the Panama Canal,” commander of U.S. Southern Command General Laura Richardson warned in August. “What I worry about is their being able to use it for dual use. Not just civilian use, but flip it around and use it for military application.”

For the Americans who live in Panama, their frustration is not just about the geostrategic threat posed by China, though that is very real. It is about the loss of a way of life. The Panama Canal Zone, a 553 square mile area that for about seventy-five years was U.S. sovereign territory, was at one point home to 100,000 Americans. Thousands of U.S. citizens departed Panama prior to the handover of the territory to the Panamanian government on December 31, 1999, but many more remain, a curious and instructive vestige of a foreign policy focused on executing the Monroe Doctrine and ensuring American dominance in the hemisphere.

The best historical treatment of the construction of the Panama Canal remains David McCullough’s 1977 National Book Award–winning The Path Between the Seas. What was for the French an unmitigated disaster that cost 22,000 lives and almost three hundred million dollars, as well as bankrupting thousands of French investors, turned into one of America’s most impressive achievements. Teddy Roosevelt deserves credit for securing American control of the project, including the Bismarckian enabling of a Panamanian revolt against Colombia by way of gunboat diplomacy. But the canal’s success was predominantly the result of two ingenious Americans: self-educated chief engineer John Frank Stevens, who designed the canal’s brilliant lock system; and sanitation officer William C. Gorgas, who identified the mosquito as the preeminent threat to canal workers and took sweeping steps to defeat malaria and yellow fever on the isthmus.

The admittedly contentious Hay-Bunau-Varilla Treaty, signed in 1903, gave the United States authority to build and administer the PCZ and its defenses. Panama itself remained a U.S. protectorate until 1939. The PCZ, which forcibly depopulated about 40,000 unevenly compensated local inhabitants, was administered by an American governor appointed by the president. Hospitals, schools, and housing developments were built across the U.S.-governed territory, which was part military base, part suburban development. There were commissaries, cinemas, and even an overseas campus of Florida State University, established in 1957 at the request of the Department of Defense. 

It was, in a sense, an American colony. It was “a small southern town transplanted into the middle of Central America,” according to Michael Donoghue, author of Borderland on the Isthmus: Race, Culture, and the Struggle for the Canal Zone. Zonians, as they were called, could enjoy social clubs, sports teams, and other fixtures of American life without ever learning to speak Spanish or even needing to leave the Zone—though plenty regularly did, to the benefit of the local economy, helping turn Panama City into the metropolis it is today.

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This idyllic tropical paradise did not sit well with many Panamanians, however. They bristled at the wealth and privilege of their American neighbors and harbored grievances over the splitting of their country by a canal they viewed as rightly theirs. Demonstrations and riots occurred between 1958 and 1962, and in 1964 a student-led march on a high school in the PCZ snowballed into violent exchanges between Panamanian protestors and PCZ police and U.S. military units. Twenty-two Panamanians and four U.S. soldiers were killed. Lyndon Johnson in 1965 declared plans to renegotiate the 1903 treaty, though it was not until the Carter administration that the United States agreed to hand over the entire PCZ, a process that was completed in 1999. (A controversial amendment to Carter’s 1977 Panama Canal Treaty, named the DeConcini Reservation after Arizona senator Dennis DeConcini, stipulates that the United States retains the right to use military force if necessary to keep the canal open.)

The textbook story of the Panama Canal is one of American imperialism and Panamanian autonomy. Many Zonians offer a different perspective. Even after the 1964 riots, it remained easy for Panamanians to cross into the PCZ, which, for all its flaws, was a critical node in U.S. geostrategic policy and served as a beacon of American efficiency, law, and order. Unemployment was non-existent, crime was minimal, and if a PCZ resident was found with illegal narcotics, the entire family was sent home. When the Panamanians assumed control, many of the buildings in the former PCZ deteriorated or were simply abandoned. Gamboa, today a rainforest reserve but once a thriving community employing those focused on dredging the canal, is a bit dystopian, with many abandoned or destroyed American-made homes, churches, and even a movie theater. Crime, including in the former PCZ, has steadily increased.

The maintenance of U.S.-made infrastructure is noticeably delayed and haphazard in the former PCZ. Massive potholes dot the roads in communities such as Clayton and Albrook, former Zonian suburbs populated by a mixture of Panamanians, Americans, and other expats. Similarly, the ACP has a reputation for waiting until canal machinery breaks to do repairs, rather than preserving the proactive maintenance schedule that was in place during the American administration. The growth of Panama City has increased the demand of freshwater from lakes and tributaries feeding into the canal, which by extension affects water levels, but there seems to be little motivation by the Panamanian government or ACP to address that problem. Efforts to combat saltwater intrusion into the canal, meanwhile, are more band-aids than strategic solutions.

At the Miraflores Locks near the former Fort Clayton, now called Ciudad del Saber or “City of Knowledge,” visitors watch an IMAX movie narrated by Morgan Freeman that briefly touches on the American resourcefulness that made the canal a reality, before offering an extensive, not-so-subtle propagandistic presentation of Panamanian control of the canal. Jimmy Carter makes an appearance, praising the Panamanians for increasing the income of the canal fourfold, though that is a bit disingenuous given that, under U.S. control, the canal was mandated to only break even in order to finance its use and maintenance (any surplus revenue was returned to the federal government). Today, the canal is the largest contributor to Panama’s primarily service sector economy, which also includes tourism, logistics, container ports, flagship registry, and banking.
In contrast to recent reported controversies, there was no remotely comparable corruption during the U.S. administration of the canal. That is not to downplay the well-documented problems of U.S. rule. Beyond the tensions with the Panamanian people, there are embarrassing examples of racism and segregation; enforcement of the Civil Rights Act did not occur in the Zone until the 1970s. Yet for those Zonians who remain—and the many others who annually congregate in Orlando—the PCZ was an important manifestation of U.S. power in our “near abroad.” As recent geopolitical events indicate, its loss may be a decision the United States comes to regret.

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