A Man, A Plan, A Canal – A Trade War
22 July 2019 - 3 min readTrade flows, like water, ultimately find their path.
PANAMA CITY – If you are looking to measure today’s global trade turmoil, there are worse places than the 51-mile stretch of canal that connects the Atlantic and the Pacific for roughly 6% of the world’s trade. (If you are a tourist passing through, moreover, there are few nearby beaches to compete for your time.)
It’s easy to turn this tiny linchpin into a broader metaphor for the trade war, but you have to be careful. This isthmus-country of 4 million people is neither a collateral victim of the current trade wars nor a future pawn in the global struggle between the two largest economies. At least, not yet.
It is, however, an important measuring stick of where we might be headed. For an astonishing picture of what’s actually going on right now, click here. Then consider three recent developments.
First, the current set of tariffs has had a noticeable impact. Overall volumes are up 2% this year but would have been higher still, the canal’s director just announced. China-bound cargo is down as Beijing cut its imports of American food and fuel, relying on purchases from Brazil and Qatar instead. Japan has now moved into second place behind the U.S. as the canal’s largest user.
Second, for all the talk of Chinese money lavished through its Belt and Road Initiative, including key ports in Greece, Sri Lanka and Djibouti, almost no official lending has found its way to Panama so far. Of the $130 billion in official Chinese loans to Latin America, the bulk have landed in Venezuela and Brazil. Chinese contractors at work on large infrastructure projects seem to be paid mostly with Panamanian government money. Talk of a Chinese loan to build a new railway is, so far, still just talk.
“Panama remains a crucial place to monitor the future patterns of global trade.”
Third, the canal is no longer the strategic chokepoint it once was. The Suez Canal offers reasonable alternative routes between Asia and the United States without locks, while trans-continental trains and trucks are now another viable alternative.
But that doesn’t mean the future of the canal’s traffic or the country’s politics do not bear close watching. Where physical and tariff barriers arise, commerce always finds a way through.
The canal itself is a triumph of political perseverance, technological progress and no small amount of luck. It was initially the 16th century dream of Spanish King Charles I to expand trade with his American colonies. In 1880, French entrepreneur Ferdinand de Lesseps, who had built the Suez Canal, spent eight painful years trying to replicate his feat in Panama before running out of money.
In 1903, Theodore Roosevelt bought out the French and drove an American effort that nudged Panamanian independence from Colombia, defeated deathly mosquito-borne diseases and introduced exciting advances in engineering. There were political motives to keep Europe out of the Western Hemisphere, strategic motives to bolster the U.S. naval presence everywhere and commercial motives to expand trade. (It also became the world’s best-known palindrome: A Man, a Plan, a Canal, Panama.)
Its epic story is one of intrigue, greed and tragedy with some 20,000 deaths during the French attempt alone. There were dozens of times when the whole attempt might have been abandoned. Without an improvised Panamanian uprising, the canal would have been built in Nicaragua instead, with vastly different consequences around its 1980s civil war or today’s Central American refugees.
But like all water seeking a path to lower ground, there were unrelenting political, military and economic forces that made it inevitable as soon as the technological and medical obstacles could be addressed.
In the same way, any obstacles to trade today, through tariff or sanction, are rarely more than temporary. If China can’t buy American soybeans, it will buy Brazilian. If America’s electronics assemblies grow too expensive in China, they will move to Vietnam.
Indeed, even as it competes with new cargo routes, Panama needs to keep up with the expanding size of ships themselves. Having taken control of the canal in 1999, the government recently opened a second set of locks to accommodate the so-called neo-Panamax vessels that are nearly four football fields long.
This political and technological dynamism are part of the reason that Panama remains such a crucial place to monitor the future patterns of global trade. Over 60% of canal traffic is either coming from or destined for the United States, so there is little doubt about where Panama’s current interests lie.
But the Panamanian government has started hedging its bets. In 2017, it renounced its recognition of Taiwan in order to establish relations with China, which then was still the canal’s second-largest customer. Last December, Xi Jinping made the first state visit by a Chinese leader. Meanwhile, the Bank of China offers airport travelers a warm welcome on behalf of “a world canal, a global bank.”
If U.S. and Chinese tariffs persist, Panama’s flows will continue to shift, because commerce almost always finds a way around political and physical barriers and this trade war was not part of the man’s or the canal’s original plan.
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