International Trade

Climate change is projected to intensify economic damages worldwide, while international trade can partially buffer these impacts by reallocating goods across regions. Yet this adaptive role depends on the reliability of global trade networks. Maritime chokepoints are particularly exposed: localized shocks can propagate through shipping networks, generating welfare losses far beyond the directly affected region. This paper studies this mechanism using the Panama Canal, whose lock system relies on a freshwater reservoir (Gatun Lake). The analysis proceeds through three margins: Canal operations, trade flows, and network propagation. On the operational margin, Canal throughput drops sharply once Gatun Lake falls below 81 feet. Monthly oceangoing transits decline by approximately 13%, while revenue per transit rises approximately 4%, as the Canal Authority rations capacity toward higher-value vessels. On the trade margin, I construct a scarcity index and decompose it into seasonal, trend, and unexpected components. The seasonal component shows no detectable trade effect, while the trend component is entangled with Pacific climate cycles. An unexpected one-foot deterioration in hydrological conditions reduces trade on Canal-exposed corridors by approximately 1%, while routes bypassing the Canal experience trade expansion, consistent with rerouting toward alternative corridors.To quantify propagation, I develop a structural maritime network model with endogenous routing and spillovers. A one-foot decline raises transport costs on Canal links by approximately 0.1%. General-equilibrium effects amplify the decline in trade to 6% across Canal-exposed pairs. Welfare losses are uneven: East and Gulf Coast states bear losses of 1–3%, while the Pacific Coast registers modest gains.