Abstract

Climate change poses significant challenges to global trade by disrupting crit- ical infrastructure like the Panama Canal, which accounts for 5% of global maritime trade and over 70% of U.S.-bound cargo. Recent droughts, intensified by El Ni˜no conditions, have significantly reduced water levels in Gatun Lake—the Canal’s primary freshwater source—prompting navigation restrictions and raising critical questions about its resilience to climate variability. This paper quantifies the economic consequences of these climate- induced disruptions and explores their implications for the United States. We model climate-driven disruptions in strategic maritime chokepoints as non-tariff barriers within a structural gravity framework, empirically esti- mating trade frictions linked to fluctuations in lake water levels and regional precipitation. We estimate that 10 mm decrease in monthly precipitation in the Panama Canal Watershed reduces US trade by 0.14% (i.e.,∼ 8.4% trade reduction during extremely dry months). By explicitly connecting localized environmental shocks to bilateral trade flows, this study sheds new light on how climate-sensitive infrastructure constraints can propagate through and substantially disrupt global trade networks.