Waterway from Boston to the Far East.

Photographer: Rodrigo Arangua/AFP/Getty Images

How Warren Would Expand Trade With Asia

Peter R. Orszag is a Bloomberg View columnist. He is a vice chairman of investment banking at Lazard. He was President Barack Obama’s director of the Office of Management and Budget from 2009 to 2010 and the director of the Congressional Budget Office from 2007 to 2008.
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News flash: Senator Elizabeth Warren of Massachusetts ardently favors a policy change that could materially expand trade with Asia and lower the prices of foreign goods sold in Boston and throughout the U.S.

No, I’m not talking about the Trans-Pacific Partnership. I’m talking about the deepening of Boston’s port.

Senator Warren is a strong supporter of a $300 million project to allow the port to handle bigger container ships. And that is significant because the Panama Canal expansion, scheduled to be completed next year, could well have a larger effect on international trade in the U.S. than the TPP trade deal, which Senator Warren opposes.

Containerization has played a key role in the expansion of trade over the past 50 years, as Paul Krugman and others have noted. Some evidence suggests it's done more than trade deals to boost trade. To be sure, the growth of container shipping may have had different effects in the past than it will going forward, but that's also true for trade deals, and the history suggests container shipping could be as or more important.

That brings us to the expansion of the Panama Canal, originally opened in 1914, through which about 5 percent of the world’s cargo currently flows. (The original canal story is fascinating, as described in David McCullough’s book, “The Path Between the Seas,” which shows how mosquito-control efforts, limiting exposure to yellow fever and malaria, enabled the U.S. effort to succeed after a French attempt failed.)

The size of the original locks limits the ships that can go through the canal to 5,000 TEU (the size of a 20-foot-long shipping container). But the expansion will create locks large enough to accommodate ships of up to 13,000 TEU. This is expected to roughly double the canal’s daily volume.

The expansion could have “significant impacts” on American ports and infrastructure, according to a report from the U.S. Maritime Administration, “potentially reducing the cost of trans-ocean shipping, particularly for those trade routes providing East-West services between the Far East and U.S. East and Gulf Coast ports. This is especially relevant to the container shipping services that have evolved during the past half-century, as trade between Asia and Western economies has come to dominate demand for Panama Canal capacity.”

And that Boston port expansion? It's needed because the largest ship that Boston harbor can handle today is just 7,000 TEUs. Without dredging, Boston’s port would have to turn away most of the larger ships that will be able to pass through the expanded Panama Canal.

That raises an important question for Senator Warren: Why is expanded trade with Asia helpful if it's facilitated by canal and port improvements, but harmful if encouraged by a trade deal?

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Peter R. Orszag at porszag3@bloomberg.net

To contact the editor on this story:
Mary Duenwald at mduenwald@bloomberg.net