When Donald Trump returned to the White House in January, his inauguration speech raised eyebrows. Among his many incendiary comments was a threat to “take back” the Panama Canal.
From 1904-14, the US built the famous conduit for maritime trade that links the Atlantic and the Pacific Oceans by bisecting Latin America, then operated the canal until 1997, after which it came under Panamanian sovereignty. But at his swearing-in, Trump effectively re-planted the American flag.
“Panama’s promise to us has been broken,” he said. “The purpose of our deal and the spirit of our treaty have been totally violated. American ships are being severely overcharged and not treated fairly in any way, shape, or form. That includes the US Navy. And above all, China is operating the Panama Canal. We didn’t give it to China. We gave it to Panama, and we’re taking it back.”
He was referring to two ports, Balboa (on the Pacific side) and Cristóbal (on the Atlantic side), the concession for which was granted to the Hong Kong-based conglomerate CK Hutchison decades ago. In early March, the company announced a deal in principle to sell 43 of its ports, including the two in Panama, for $22.8bn to a consortium led by BlackRock, an investor with $11.6tn in assets under management.
After the deal was announced, China expressed its fury. Stinging criticism of CK Hutchison from state media caused the firm’s share price to slide and the deal to stall. Yet nobody was surprised that BlackRock was involved, and while the deal is part of a wider US-Chinese economic war, it also casts a light on the firm’s influence, both domestically and internationally.
Financial giant
Founded in 1988, BlackRock is still a relatively young company. It is based in New York City and chaired by one of its co-founders, Larry Fink, a lifelong Democrat. The company deals with everything from equities, bonds, and real estate to exchange-traded funds (ETFs). It is so big that its deals send ripples through financial markets. It has the power to set buying or selling trends. It can even stir nation-states to act.
With 23,000 staff in more than 20 countries, BlackRock manages investments and pension funds for institutions, corporations, sovereign wealth funds, and individuals, investing both actively (through stock selection) and passively (via index tracking) in sectors such as real estate and infrastructure.
BlackRock is thought to own up to 7% of S&P 500 companies (America's biggest), with notable stakes in giants like Apple, Microsoft, and Exxon. This gives it considerable power to shape corporate policies and boardroom decisions.
Some worry about the impact of this power, citing its role in "advising" the US government to bailout America's big financial institutions in 2008. Others accuse BlackRock of hypocrisy over the environment, given its stated aims on sustainability but its concurrent holdings in companies that profit from fossil fuels.
In 2020, BlackRock was enlisted to manage the Federal Reserve's COVID-19 stimulus bond-buying programme, and in the past two years, it has deepened its investments in cryptocurrency and blockchain technology, marking a shift towards digital assets.
Its influence is not disputed. US Senator Elizabeth Warren acknowledged that BlackRock and other large asset managers "have a great deal of power over our economy," while Charlie Munger, vice-chairman of fellow investment firm Berkshire Hathaway, said index funds like those run by BlackRock wield enormous influence over American corporations.
Ports and politics
When news of BlackRock's $22.8bn deal to buy 43 ports, including the two bookending the Panama Canal, few were surprised. Its timing was notable, just weeks after Trump's speech.
US Secretary of State Marco Rubio visited Panama in early February and told President José Raúl Mulino that he must reduce Chinese influence over the canal or face potential confrontation with the United States. Mulino rejected the idea that China had any control over canal operations but withdrew Panama from China's Belt and Road Initiative (BRI).
If it goes ahead, the BlackRock-led consortium will ultimately control 43 ports with 199 berths in 23 countries, including Mexico, the Netherlands, Egypt, Australia, and Pakistan, but Balboa and Cristóbal are the most significant due to their strategic position at either end of the canal.
Mulino reacted angrily to Trump's comments about "reclaiming" the canal, saying it "is Panamanian and will remain so," but he is treading a fine line, because the United States accounts for around 70% of cargo transiting the canal, with China the second-largest user. The 82km waterway facilitates 4% of global maritime trade and over 40% of total US container traffic.
Any deal requires the approval of the Panamanian government. Some in Panama welcome the idea of American involvement, hoping it will improve the canal's management. Others warn that it would infringe on national sovereignty, reduce Panama's revenue from transit fees, and reward Trump's provocative rhetoric.
