During the 15th century, the Spanish caravelas required an alternative route towards
its colonies in Peru. The usual trip would go around Cape Horn, surrounding the
South American continent, only to follow north once the Pacific Ocean had been
reached at the very bottom of Chile. The trip was not only long but also expensive.
The passage through Portuguese territories involved high payments of tariffs to
every vessel. The Spanish Empire, aware of the short length of some Central
American countries, became to wonder if it was possible to create a manmade
waterway from one ocean to the other. Little did they know that the idea of such
route was not only possible, but also profitable. It was only still ahead of its time.

A couple of centuries later, the French diplomat Ferdinand de Lesseps raised
massive amounts of financial support for a canal that would unite both oceans.
Panama was the chosen location due to the climate and soil conditions. A 77-
kilometer strait would be demolished with the intention of building a colossal
engineering project to accelerate the flow of supply goods. Lesseps was confident
about the plan mainly because of the incredible success of his last related project;
the Suez Canal. Although the French were the first to become interested in the
Panama Canal, all of their engineering designs failed due to high death tolls left after
excavations, diseases and accidents in the Panamanian jungle.

In the 19 th century, the United States tried to take over the project. Theodore
Roosevelt pursued a construction concession with the recently independent Great
Colombia (at present day Panama, Ecuador, Colombia and Venezuela). At that time,
proud of their recent independence, the then president Simon Bolivar rejected the
North American offer and tried to focus on the well being of a newborn society.
However, this rejection yielded disagreement from the Panamanian territories and
notions about a separation from the Great Colombia were born. With the help of US
intervention, Panama had its independence from Colombia in 1903, and the interest
about linking both oceans, arose again.

The canal would not only serve as a passage from the Caribbean Sea to the Pacific
Ocean and vice versa, but will also involve massive amounts of revenues and a
forever shift in the supply management logistics of the Western Hemisphere. The
shortcut would relatively plummet shipping times and the trading process will be
shortened, opening the door to a faster globalization. Before the shortcut, a trip
between New York and San Francisco would normally had to sail around South
America. With the canal, that same trip would be sliced by almost 13,000 km,
making it only around 6,000 kilometers long.

After the Panamanian independence in 1903, the US obtained immediate
authorization to begin the project. After various legal issues, accidents, doubts and
more than 5 thousand deaths, the canal was finally opened on August 1914. Since
that moment, the canal began to operate under US control.
The Panama Canal was the trophy that the United States needed to show off its
potential as a new world power. International journalism sent the signal: “The
Americans have just achieved what the French could not”. It was a message to the
world that a new powered-economy was emerging, and old were the days with
Europe as the only dominant continent. A manmade waterway of that size meant a
new step forward for humanity over nature. It was the beginning of a new order
within international trading.

The US delegated control of the canal to Panamanian authorities in 1999, following
the Torrijos-Carter Treaties. Nevertheless, after the transition of administration, the
Panamanians followed a different operative path. Instead of using the canal as a cost
minimizer to increase the amount of crossings, the Panamanians chose a profit
maximizing approach. The total price to cross the canal has risen by 66%, and its
surroundings have been modified from a military zone to a touristic area. The
Panamanians were determined to extract as much wealth as they could from that
beautiful piece of engineering, and after 17 years of self-managing, they even
managed to expand it in order to increase capacity.

As a result of the outstanding success of the Panama Canal, the idea about a second
canal came to float. The Nicaraguan Isthmus became the favorite location for a new
shortcut. An isthmus consisting of 278 kilometers from one coast to the other. The
Nicaraguan president Daniel Ortega, organized a contest between the interested
investors. Wang Jin, a Chinese billionaire won the contest by proposing a $40 billion
dollar project. Ortega, convinced of the economic gains surrounding a transoceanic
canal, commenced to facilitate the conditions required.

Since the project needed the support of the Chinese government, Jing used as an
argument the reduction in maritime tariffs from Venezuelan oil. Due to diplomatic
disputes between the Venezuelan and US governments, the US had used its immense
influence over the Panama Canal to try to halt the export of Venezuelan fossil fuels
as much as possible. China in turn, being one of the largest oil loyal customers of
Venezuela, desired an alternative route, or an alternative canal.

The existence of a second bridge linking the two most transited oceans will mean
another shift in international trade. The prices of the supply of goods will be set by a
competitive game between two trading doors. It will be inevitable for both canals to
maintain below market prices due to increased competition, therefore yielding a
massive increase in trade flow once again.

Chinese involvement in a region previously known as the United States backyard
has been considered a signal by the Chinese to show off its constant increasing
influence. A new step in the staircase of Chinese domination and a message sent to
the rest of the world implying that a new economic power is emerging. Just as once,
the US did.

The Nicaraguan Canal is only one example of the recent increase in Chinese
influence over Latin America. President of China Xi Jinping stated that more than
250 billion dollars would be invested in Latin America from China over the next
decade. China has already surpassed the US as the largest export market of Brazil,
the strongest Latin American economy today. Many economists begin to wonder if
this new economic dependency will have similar results to that of Europeans or
North American imperialism.

China has proven them wrong. It has become an attractive investor because of its
non-interference approach, staying away from the domestic affairs of its partner
countries. It is important to mention that due to poor governance and heavy
corruption, most of the countries in Latin America have a hard time securing
international financing, but China extracts benefits not only from direct revenues.
They build desperately needed infrastructure and later use it to transport raw
materials for their own growing economy. It is a win-win situation. The time is
optimal for a fit between these two economies. Expect an even higher increase of
Chinese involvement in Latin America, while the world welcomes a new economic,
political and cultural power.


  • Alfonso Garza

    Alfonso Garza (Mexico, 1992) graduated in BSc Economics in the University of Amsterdam. He is currently working on a MA Latin American Studies degree in CEDLA, UvA.