The long-awaited and elusive Trans-Pacific Partnership may finally be in reach. The TPP has the potential to be the largest trade agreement in world history, with the countries in the Partnership collectively producing 40 percent of global GDP, significantly more than even the European Union. The deal is also structured in a way that China could foreseeably join the Partnership if it meets certain requirements including intellectual property protection and a commitment to refraining from currency manipulation.
And while optimism for the trade partnership in 2011 and even early 2013 was waning, new economic figures from East Asia are convincing leaders that a deal is necessary to confront slowing world trade. Assembled leaders at the Bali, Indonesia trade summit reported “significant progress” and predicted that the deal may likely be completed this year. Ratification of this agreement and the corresponding shift in global economic policy is certain to shake up established trade routes.
If such a deal is completed, trade in Pacific countries would increase considerably, putting pressure on existing trade infrastructure. In this way, the aging Panama Canal may soon lose its monopoly status on shipping through Central America. Signs of weakness in the Canal are already visible, and American ports and rail have already benefitted enormously from the the Canal’s inefficiency.
The width of the canal was satisfactory for decades, but now sections are too narrow to handle massive ships full of consumer goods. For instance, it can only accommodate freighters with 4,000 containers while the largest ships today carry over three times that amount. Expanding the width isn’t a serious option either as economic and urban growth on the banks of the canal make expansion in certain sections very difficult. However, the government of Panama has approved $5.2 billion in canal expansion in an attempt to recapture and retain shipping business.
Investors are noticing the profit potential in finding a second trade route through Central America. Chinese telecom executive Wang Jing plans to spend $40 billion constructing a second canal through Nicaragua. Whether this is feasible or not remains to be seen.
“The dream of such a canal, three times as long as the one that cuts through Panama, is centuries old, and has made fools of all who ever believed in it,” writes the Economist:
But Mr Wang has already pulled off one remarkable feat: he has persuaded the former revolutionaries in the Sandinista government to put Nicaragua’s sovereignty in hock to make the dream come true.
To do so, he has deployed little more than his personal chequebook and a bit of old-fashioned swagger in the style of Cornelius Vanderbilt, the tycoon who blazed a trail by shipping migrants from the eastern United States to its west coast via Nicaragua during the Gold Rush years of the 1840s and 1850s.
The Nicaraguan canal would be at least twice as wide as the Panama Canal and could accommodate substantially larger ships and more cargo. The economic benefit from such a project ultimately convinced the Sandinista government to approve the project in Nicaragua, which is currently the poorest country in the Central America and second poorest in the Western Hemisphere. If the Trans-Pacific Partnership is ratified as expected, massive profits are waiting to be made in Central America by efficient transportation.
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