Panama Canal Summary

  • Last updated on November 10, 2022

The canal allowed the United States to transport goods in ships from the East Coast to Asia easily and efficiently, opening up new markets and creating profit for manufacturers, shippers, and the canal operators.

The late nineteenth century was a bleak time for the United States, which experienced a great economic slump as it began the transition from an agricultural to an industrial economy. The Panic of 1873, which mostly affected the countryside, was followed by the Panic of 1893, the first true crisis of the newly industrialized economy of the United States. Railroads collapsed, as did banks and their investors. Credit markets became shaky, and defaults on bond payments led to an even greater crisis. Countless workers–perhaps numbering in the millions–lost their jobs. The economy was in a shambles. However, the American victory in the Spanish-American War (1898) created a wave of optimism. The war had produced enormous political and economic benefits, including an expansion of overseas markets, at very little cost to the national treasury.Panama Canal

In the midst of this optimism, legislators and the American public were soon faced with plans for the construction of a Central American isthmian canal with an estimated price tag of some $400 million. This plan was part of the Republican platform of 1896, on which William McKinley had been elected president. The platform proposed the following course of action: the building of a “steel, blue-water” navy; the construction of an isthmian canal somewhere in the Western Hemisphere, so as to defend American commercial interests; and the expansion of U.S. markets abroad, especially in Asia.

During his involvement in the Spanish-American War, President Theodore Roosevelt had become convinced of the absolute necessity of such a canal, and by 1902, Congress had passed the Spooner Bill, which authorized the building of a canal through Panama. Congress appropriated $40 million for the president to purchase the property and supplies of the New Panama Canal Company in Paris. Then, it authorized the president to opt for one of two plans: If the canal was to be routed through Panama, Congress earmarked $135 million to begin the project, whereas if the canal was to pass through Nicaragua, $180 million could be spent.

In 1903, the United States and Panama signed the Hay-Herrán Treaty (1903)[Hay Herrán Treaty]Hay-Herrán Treaty, in which Colombia, the power that controlled Panama, consented to the project. Opposition to the project arose in Colombia, but the government soon had to deal with other matters, when a revolutionary junta, under the command of José Agustín Arango, mounted a rebellion. On November 6, 1903, President Roosevelt recognized the revolutionary junta as the official government of Panama. On November 11, the Panamanian representative, Philippe-Jean Bunau-Varilla, concluded a Panama Canal convention with Secretary of State John Hay. The Hay-Bunau-Varilla Treaty (1903)[Hay Bunau Varilla Treaty]Hay-Bunau-Varilla Treaty was ratified on December 2, and the U.S. Senate approved it on February 23, 1904.

By 1908, the year William Howard Taft was elected, expenditure on the canal had reached $33.2 million, only to be surpassed by the expenditures of the following year, which brought the total to $170 million, $35 million more than had been appropriated by Congress in 1902. Another appropriation of $397 million, to be raised with 3 percent bonds, was added to the $135 million to see the project through to completion. The United States built the canal in ten years, and it was officially opened on August 15, 1914. Through the Torrijos-Carter Treaties (1977)Torrijos-Carter Treaties (1977), the canal was ceded back to Panama by the United States in 2000.

Since its opening, the Panama Canal has been enormously important to business in the Western Hemisphere, as well as lucrative. In the eighty-five years that it belonged to the United States, the canal took in approximately $1.9 billion, while, in contrast, revenues from 2000 to 2006 were $2.8 billion. On the average, 12,000 ships pass through the canal every year, accounting for almost 5 percent of total world shipping. On October 22, 2006, the citizens of Panama overwhelmingly approved a national referendum to construct new locks, widen and deepen the canal, and excavate new access channels. These improvements are designed to allow for passage of larger and heavier ships, and thereby bring an increased volume of passage and profits to the Panama Canal Authority. In the twenty-first century, the Panama Canal remains of extreme importance to world trade and to U.S. security interests in the Western Hemisphere.

Further Reading
  • Cosmas, Graham A. An Army for Empire: The United States Army in the Spanish-American War. Columbia: University of Missouri Press, 1971. A detailed and carefully documented history and analysis of the role of the army in every aspect of the Spanish-American War, with a fine recounting of discussions regarding the need for an isthmian canal and the plans to execute its construction.
  • McCullough, David. The Path Between the Seas: The Creation of the Panama Canal. New York: Simon & Schuster, 1977. This is the single most authoritative work on the history of the Panama Canal. Written in a clear and accessible style, McCullough’s book is filled with essential information about the entire canal project–from its inception to its completion.
  • Maurer, Noel. What Roosevelt Took: The Economic Impact of the Panama Canal, 1903. Boston: Division of Research, Harvard Business School, 2006. An outstanding study of the economic benefits garnered by the United States from the construction and operation of the canal–benefits that were not shared fully by the Panamanian people.
  • Meditz, Sandra W., and Dennis M. Hanratty, eds. Panama: A Country Study. 4th ed. Washington, D.C.: U.S. Government Printing Office, 1989. This outstanding fact book was prepared under the auspices of the Department of the Army. It is the single most complete source of data on Panama and, despite its age, still offers a superb introduction to the history and workings of the nation.
  • Parker, Matthew. Panama Fever: The Epic Story of One of the Greatest Human Achievements of All Time–The Building of the Panama Canal. New York: Doubleday, 2007. An excellent historical study of the planning and construction of the canal, with new insights into the design process.
  • Speller, Jon L. The Panama Canal: Heart of America’s Security. New York: Robert Speller & Sons, 1972. This brief study answers criticisms of U.S. policy that have been raised over the decades since the building of the canal. It is especially helpful as a resource for analysis of the original treaty documents.


Erie Canal

Latin American trade with the United States

Shipping industry

Spanish-American War

Transatlantic steamer service

Categories: History