The fragility of the global trading system

Stephan Maurer, Luke Milsom and Ferdinand Rauch

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: We use a parsimonious gravity framework to simulate and compare five potential shocks to the global shipping system: closures of the Panama Canal, the Suez Canal, and the Strait of Malacca, and openings of the Northwest Passage and a hypothetical Kra Canal. Applying a single, consistent methodology across all five scenarios allows relative comparisons. Using carefully measured seaborne distances between ports under each hypothetical geography, we find that a Panama closure would be the most consequential shock, reducing global trade by nearly 3% compared to a default gravity prediction, followed by Suez (2.5%), Malacca, (1.7%), a Kra opening (+0.7%), and the Northwest Passage (+0.6%). Aggregate GDP and welfare effects are more muted, but show sizable heterogeneity across countries. For example, Panama loses over 9% of GDP from a Panama closure, Egypt and Sudan over 5% from Suez, and Malaysia over 4% from Malacca.

Keywords: Gravity; Panama; Suez; Kra; Malacca; Northwest Passage (search for similar items in EconPapers)
Date: 2026-05-27
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