Panama Canal: Thermometer of the US-China feud, Covid-19 and post-Pandemic recovery

A singular strategic point in world trade flows, the Panama Canal is a good thermometer of the political and economic vicissitudes of the planet. The figures for cargo traffic through its waters over the last few years reflect well, consecutively, the commercial pulse maintained between the United States and China (2018-2019), the paralysis of industrial activity due to the confinements forced by the pandemic (2019-2020) and the subsequent economic reactivation (2020-2021). The US remains the canal's main customer, but Beijing has increased its role as the second largest beneficiary in the last year: 22.1% of the total tons transiting the canal correspond to cargoes originating in or destined for China.

The Panama Canal is the main connecting route for maritime traffic between the Atlantic and Pacific Oceans, as it is located in a geographically strategic point that reduces both transport costs and the duration of routes. The canal has been one of the main drivers of economic growth in developed countries (especially the United States) and has boosted economic expansion worldwide.

As the 'membrane' connecting the national economies of much of the world, it is particularly sensitive to changes in different parts of the world. Looking back over the last five years, several movements are reflected in the traffic figures through the channel, starting with Donald Trump's campaign to try to limit purchases from his big Asian competitor, and thus reduce the large US trade deficit in favour of Beijing.

The year 2018 was characterised by the trade war between the US and China, which began in March 2018, following Trump's advertisement decision to impose tariffs on numerous Chinese products. Trump defended his decision by arguing constant "unfair" trade practices, intellectual property theft and other illegal acts by the Chinese government. Beijing responded by also imposing tariffs on many US exports to China. Both measures were reflected in international trade and also in the traffic of goods through the Panama Canal.

Although an important part of the trade that the United States maintains with the Asian power is carried out from the US West Coast, the demographic and economic weight of the US East Coast also forces a significant portion of the flow between the two countries to pass through the canal, which is why traffic between the two powers through this transoceanic route also suffered.

From agreement with the figures offered by the Panama Canal Authority, whose statistics are used as the main source in this article, in the 2018 fiscal year (Panama counts it between October 2017 and September 2018), the tonnage of cargo with origin or destination in China fell by 5.46% compared to 2017, compared to an increase of 5.32% in cargo that had departed from or arrived in the USA (the percentages include the traffic that the USA carries between its two coasts). China, therefore, suffered the most in this pulse, especially in terms of cargoes directed there, which fell by 18% compared to the previous year.

The 2019 fiscal year recorded what could both be result of Beijing's trade counter-attack and the effect, later in time, of the emergence of the pandemic in China. The US showed a 3.07% decline in origin and destination cargo flows from the previous year, while China saw an 18.62% decline, the first country to be affected by Covid-19 and by strict containment that would later be applied by other countries as the virus spread globally.

The Covid-19 pandemic disrupted lives, affected the global Economics considerably and hampered international trade between countries. In its Maritime Transport 2020report , published in November 2020, UNCTAD estimated that global seaborne trade would fall by 4.1 per cent that year due to the unprecedented disruption caused by Covid-19. However, although also affected, the Panama Canal did not suffer a decline in traffic. From a total of 442.1 million tonnes handled in 2018 (an increase of 9.4% over 2017), it rose in 2019 to 449 million (an increase of 6.2%, a slightly smaller advance than the previous year because of the Sino-US trade war); in 2020 it was able to control damage and record a flow of 475 million tonnes (an increase of 1.2%).

The effects of the slowdown caused by Covid-19 were most evident in the sea lane between May and July 2020, a period in which most countries had established strict containments. Cargo transit flows began to normalise between August and September, allowing the fiscal year to end on a relatively satisfactory note. The volume of flows linked to the US increased by 4.85%, and those linked to China by 16.64%.

That recovery was even more noticeable in the 2021 fiscal year, when the canal handled a record 516.7 million tonnes (8.7% more than in 2020), with strong increases also from its main users: the flow of cargo with origin or destination in the US reached 210.5 million tonnes (an increase of 18.45%) and that involving China reached 63.5 million (up 59.21%). Thus, cargo linked to the US has gone from 68.3% of the total in 2017 to 72.5% in 2021; in those five years, China has gone from 18.3% to 22.1% (although the percentages attributed to both countries would together account for more than 90%, the Canal Authority warns that "the percentage of participation should not be added because each tonne of cargo has an origin or destination associated with each other, which would result in the duplication of the percentage of tonnes of cargo").

This consolidates China's position as the canal's second largest customer, a position it almost lost to Japan in 2019 due to the trade war with the US, which has now been mitigated. The investments that Beijing has made in port terminals at both mouths of the canal confirm China's intention to take full advantage of this infrastructure, while at the same time creating concern in Washington due to the increase in Chinese interest in area of traditional US influence.