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The Fragility of the Global Trading System

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  • Maurer, Stephan
  • Milsom, Luke
  • Rauch, Ferdinand

Abstract

We use a parsimonious gravity framework to simulate and compare five potential shocks to the global shipping system: closures of the Panama Canal, the Suez Canal, and the Strait of Malacca, and openings of the Northwest Passage and a hypothetical Kra Canal. Applying a single, consistent methodology across all five scenarios allows relative comparisons. Using carefully measured seaborne distances between ports under each hypothetical geography, we find that a Panama closure would be the most consequential shock, reducing global trade by nearly 3% compared to a default gravity prediction, followed by Suez (2.5%), Malacca, (1.7%), a Kra opening (+0.7%), and the Northwest Passage (+0.6%). Aggregate GDP and welfare eects are more muted, but show sizable heterogeneity across countries. For example, Panama loses over 9% of GDP from a Panama closure, Egypt and Sudan over 5% from Suez, and Malaysia over 4% from Malacca.

Suggested Citation

  • Maurer, Stephan & Milsom, Luke & Rauch, Ferdinand, 2026. "The Fragility of the Global Trading System," CEPR Discussion Papers 21546, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:21546
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    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure

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