Positive and Negative Economic Impact of Panama Canal Expansion

Economic Impact of Panama Canal Expansion

The Panama Canal Expansion Project

The Panama Canal was first unveiled in 1914. This initiative was welcome with many speculating that the link between the Pacific Ocean and the Atlantic Ocean would accrue several benefits for different countries. Though the major beneficiaries would be the Panama and USA, other Asian countries would also benefit from trade and transportation.

Initially, Panama gained high revenues from this initiative and by the mid-1980s the country was earning 9% of its income from the canal. However, after raising taxes, several shipments began to utilize alternative shipments and this led to stagnation in terms of revenue as well as the growth of the canal. In addition to the taxes, there were also complaints about the size of the canal which hindered larger vessels from using this trading route. The larger oil tankers could not pass through the waterway. The Panama Canal thus lost many shipments to alternative trading routes.

It is from this perspective that the government of Panama decided to start the Panama Canal Expansion project. Panama figured out that expansion would help to regain the initial stature of the world-class waterway. During its conceptual stages, the expansion project did not receive much attention. After the first stage of the expansion project, bigger vessels could now pass through the waterway and this elicited a lot of debate. There have been many speculations regarding the benefits and demerits that are bound to occur with this expansion project.

Positive Impacts of Panama Canal Expansion

Already there are several benefits that Panama is reaping from initiating the canal expansion project. There are more vessels that are using the Panama Canal trade route as compared to the initial stages. The new locks are designed to handle vessels that weigh 17,000 deadweight tonnage or 12,600 TEU.

This has definitely improved traffic at the waterway with some companies inventing genius ways of getting through the canal. For instance, the South Korean company Samsung Heavy Industries recently devised methods to get a 13,200 TEU container to pass through the locks.

Ultimately, the expansion of the canal will have a positive impact on trade flows from the US to Asia Pacific markets. Already there are strategies in place to increase trade in grains from the US to the Asian markets. This includes trade in soybeans and other grains.

Trade in coal is also bound to benefit from this infrastructural improvement. Coal from Colombia to Asian markets could easily use the Panama Canal trade route. This will not only make it cheaper but also sustain supply to big markets such as China.

Negative Impacts of Panama Canal Expansion

Despite the potential positive impact that this expansion may have, there have been skeptical approaches to the development. Many critics have stated that the expansion will benefit the East port cities more hence diverting business and trade activities from the West Coast to the East Coast. This remains the main concern for many traders on the East Coast.

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