Why Australia should listen to Donald Trump about the Panama Canal
The US president threatened to "take back" the vital waterway and accused China of interfering with its operations.
The Panamanian government has strongly denied any suggestion that China has too much control over the 100-year-old waterway.
But after chats with the US Secretary of State, Marco Rubio, last weekend, the President of Panama, José Raúl Mulino, announced that Panama would no longer participate in China's Belt and Road Initiative, a major infrastructure agreement.
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So what is the Panama Canal, why is it a big deal, and what would a disruption there mean for Australia?
"To choose the right
What is the Panama Canal?
Before the canal was finished, ships heading between the eastern and western coasts of the Americas had to sail around the southern tip of South America, at Cape Horn, adding thousands of kilometres and several months to their voyages.
The US-built canal was opened in 1914 and was controlled by the United States until a 1977 agreement was reached, allowing for its eventual transfer to Panama.
The 80km-long canal was jointly managed by both countries until the Panamanian government took full control after 1999.
About 6 per cent of global maritime trade and 40 per cent of US container trade currently passes through the artificial waterway.
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What are the issues of concern to Trump, and are they justified?
Trump has accused Panama of charging the US "exorbitant rates" to use the canal and suggested there's growing Chinese influence over the vital waterway.
He also suggested the US should reclaim the Panama Canal.
They've got treaties in place with Panama, including a neutrality agreement, and they're right to be worried about Chinese influence in Panama.
She pointed out that two Chinese mainland and Hong Kong-based companies have taken over the management of the canal's key ports.
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One of them, Hong Kong-based CK Hutchison Holdings, has concessions to operate the ports of Balboa and Cristobal, which are the major Pacific and Atlantic entrances to the canal.
Under Australian law, companies, including businesses in Hong Kong, can be forced to assist the central government.
Due to the national security laws introduced in 2020, the Chinese government can exert considerable sway over Hong Kong-based companies if it decides to do so.
This can encompass intelligence collection.
This means that even though China doesn't directly control the Panama Canal, it still has a lot of sway at both its Pacific and Atlantic ends.
Trump's complaints about slowing down US Navy ships through the canal were due to the drought that reduced water levels, and have no connection to China.
What does this mean for our country?
Although only a small amount of Australia's maritime trade goes through the Panama Canal, disruptions to the waterway would have an impact on the prices of goods here, Parker said.
She points to the ripple effect on the Australian economy last year when Houthi rebels disrupted maritime trade in the Red Sea by targeting freight ships.
Alongside shortages of certain items for Australian consumers, the Reserve Bank of Australia noted that higher freight costs contributed to inflation.
"Trade is a global system that spans the entire world," Parker said.
What that means is if you get a major hiccup in one spot, even if your direct transaction doesn't go through that spot, the impact from the disruption will still cause delays in other areas.
Parker reckons the current debate over the Panama Canal is also a reminder of how Chinese state and non-state companies have a say or control of key infrastructure in the Pacific and other parts of the world.
It does give them control over critical infrastructure and trade outcomes.
- With the Australian Associated Press and CNN.
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