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Why did the Panama Canal get a $5 billion facelift?

The Panama Canal, a century-old shortcut connecting the Pacific and Atlantic oceans for global trade, carries a third of the trade from Asia to the Americas. Tomorrow, the 50-mile canal will open after nine years and a more than $5 billion effort to widen the waterway. David Brancaccio, host of The Marketplace Morning Report from American Public Media joins Alison Stewart to discuss.

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  • ALISON STEWART:

    The century-old Panama Canal is a vital lifeline for global trade, a shortcut connecting the Pacific and Atlantic oceans and carrying a third of Asia to America's trade. Tomorrow, the 50-mile canal officially opens a new era. After nine years, $5.5 billion of effort to widen the waterway for the world's biggest cargo ships.

    David Brancaccio, the host of "The Marketplace Morning Report" from American Public Media, recently went to Panama to see the new and improved canal. He joins me now to talk about what he saw.

    Let's do basics first, David. Why was there a need for a $5.5 billion project like this?

    DAVID BRANCACCIO, HOST, "MARKETPLACE MORNING REPORT": Well, the other one was 100 years old. But, you know, vintage. That's not bad. It's too thin.

    And something magical happened after they started to plan the new canal that is really going to help, I think, Panama, which is the energy boom in the United States. Fracking produced a lot of natural gas, a lot of liquefied natural gas. Asian customers love that stuff. The tankers that carry our liquefied natural gas from the Gulf don't fit. Don't fit, they're just too big. And so the new canal will accommodate them.

    And ships have gotten big and bigger in the 100 years since old canal, 102 years since the old canal opened up. And the Suez Canal was taking away a lot of Panama's business. And the biggest possible cargo ships in the world still won't fit the new Panama canal, but way bigger ones will.

    In fact, they're so big that we have to upgrade our ports here in the United States. Even as we speak, in the port of New York, Newark, they have to raise a huge bridge to let the new post-Pannamax vessels, they're called, get in. And those infrastructure upgrades won't be ready for a little while.

  • ALISON STEWART:

    I don't want to bury the lead here. You went to Panama! You got to see it up close. First, give me sort of the gee-whiz part of it. And then explain to me the highs and the lows of actually getting this done.

  • DAVID BRANCACCIO:

    Well, I got to hang out with a tug boat captain, and we went in the old Panama Canal. And you looked over, and there was the new one ready to go. They're just opening it essentially this weekend, so I couldn't go in yet.

    The old ones have these jaws that open up for the locks. The new ones have kind of a sliding patio door. But they're just much, much larger. They've thought a lot about conservation, particularly water conservation. And they've tried to reforest where they deforested, and it created about 40,000 jobs.

    Interestingly, giant infrastructure projects tend to go wildly over-budget. The Panamanians kept a lid on this. It's actually a very interesting case study of an emerging market country that has a giant infrastructure project that is run, international experts told me, really quite well.

  • ALISON STEWART:

    "The New York Times" described this as quote, "a risky bet." What's risky about it?

  • DAVID BRANCACCIO:

    There are a lot of risks. First of all, the thing sprung a leak during its construction. I am told by authorities, they fixed that. One hopes they did. There are some other risks. Apparently, earthquake risk was raised as an issue in "The New York Times" article, and others.

    The biggest risk– somehow "The New York Times" missed, but we tried to focus on our coverage — World Trade, planet Earth, the whole world — trade has actually tapered off in the years since the 2008-2009 financial collapse. It's not going down, but trade growth is much slower than it was. Could be a cycle. You know, wait a little while, it will come back. There are people who argue that is the case. You know, China, it's restructuring its economy. The mess in Europe. But this, too, shall pass. Trade will come back.

    Others tell us, maybe all this globalization that we've talked about, Alison, for 30 years now, maybe it's kind of run its course. Trade will still grow a little bit. It will be significant. But it won't be the big story it used to be. So that dynamic has to play out. That's one of the big risks.

  • ALISON STEWART:

    What do you think could be an unintended consequence of this? We know why they did it, what they wanted to accomplish. From your reporting, is there anything you think that could be and outgrowth of this that no one expected?

  • DAVID BRANCACCIO:

    When I'm in Panama, I didn't just stare at the canal. I looked at the country. And it's a kind of Singapore in a way. There's all these financial services. The canal is certainly not the only game in town. Growth in Panama has been double the rate of the surrounding countries.

    But the gap between rich and poor remains very wide in Panama. Now, there have been some improvements in Panama in recent years. They've narrowed the gap a bit, but some critics say not nearly enough, and many Panamanians say that.

    So I was talking to a very experienced journalist. He started a big newspaper in Panama City, "La Prensa." And he said "I got a crazy idea," sort of a quixotic quest he has. You could narrow the gap between rich and poor — which is so striking when you travel through Panama City — you could narrow it by taking all of the profits of the canal each year and dedicating it to improving Panama's schools. It would double the Panamanian school budget.

    So one unintended consequence is perhaps if a — an interesting idea that this guy has were to get traction, that perhaps it could have a more wider effect than other economic development has had in improving the lives of average Panamanians.

  • ALISON STEWART:

    We all learned about the Panama Canal growing up in high school and junior high school. It was a big part of every history curriculum. In your opinion, will this change? Will this modification be equally as important? In the next 50 years, will kids learn about it?

  • DAVID BRANCACCIO:

    I think that moving goods on containers, it will still be here. And Panama Canal will still be relevant. Had they not done the improvement, had they not done this widening, opening now, they would have been in danger of being obsolete.

  • ALISON STEWART:

    David Brancaccio, thank you so much.

  • DAVID BRANCACCIO:

    Real pleasure.

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