Is Colombia about to write America off?

If the US keeps on postponing its Free Trade Agreement with Colombia, Colombia "will not keep insisting" said the Colombia president Juan Manuel Santos in mid-February. For Colombia, trade with the US may well not be the only game in town.

While America's politicians were gratuitously insulting Colombia by letting its ATPDEA treaty with the US lapse almost overnight over an absurd squabble about Bangladeshi sleeping bags that had nothing to do with Colombia, Colombia was busy agreeing with China to build a rival to the Panama Canal – but one that's completely outside US control.

The idea is to build a railway line across northern Colombia linking the Atlantic and Pacific, backed by China, and costed partly on the basis of extracting raw materials from the north of Latin America. "It's a real proposal ... and it is quite advanced," Santos told the Financial Times. "The studies [the Chinese] have made on the costs of transporting per tonne, the cost of investment, they all work out." Santos stressed the "incredible" number of Chinese delegations pitching proposals. The railway would require a production and assembly hub in a new city south of Cartagena, he said. "I don't want to create exaggerated expectations, but it makes a lot of sense."

Well, maybe. The world's industrialisation was sparked off by a colossal miscalculation about this.

In the early 19th century, the merchants of South Lancashire, in NW England, seriously thought they'd easily pay for the cost of building the world's first real railway, between Liverpool (where most of America's cotton was exported to) and Manchester (where it was spun into cotton yarn and fabric), because the rival canal was so slow and expensive.

In fact, scarcely a single bale of cotton ever used the train. Once opened in 1830, the railway forced the canal operators to cut its costs, and the barge operators to speed up. Meanwhile the sheer hassle of offloading cotton from Liverpool port, dragging it by horse-drawn carriage up to the railway station, and then going through the whole process in reverse at Manchester (where they'd built mills along the sides of the canal to simplify receiving raw cotton) meant the trains made no sense. But the people of Liverpool and Manchester discovered all sorts of advantages in travelling the 30 miles or so between the two cities in not much more than an hour (well: the people of Manchester discovered the advantages of being able to escape quickly to civilisation: no Liverpudlian's ever seen the point of Manchester, except as a place to send raw cotton to or as a dumping ground for footballers when they go soft). By the end of the first year, passenger travel between the two cities grew fivefold, and just one stagecoach operator was still running between the two – but all the cotton and finished goods were still travelling by canal. In next to no time, the investors got their money back – and started scouring the world for new investment opportunities. The industrial world had been invented, and a new kind of venture capitalist to go with it.

Later: trains cut the cost of moving goods in many places. But trains first became credible by demonstrating the value of fast passenger travel. And so fast transport took off, and within a few years most of the developed world had trains.

What's the significance of what happened in 1830 at the end of the street I grew up in (that's where the deserted ruins of the world's first real railway station were still visible in my childhood)? Well, the cross-Colombia railway will probably never speed up, or reduce the price of, garment transport between Asia and America's East Coast, or of cotton moving between the Gulf ports and Asia. Or any other goods. Especially with a deeper, wider, Panama Canal coming onstream around 2014: the problems of double-transhipment could destroy that source of revenue.

The railway might create a whole new – and totally legitimate - revenue stream for Colombia, as a conduit to Asia for Latin American raw materials. With Chinese financing, the project would be a viable and attractive way for Bogota to ease transport bottlenecks in its mining industry, said Heather Berkman, a Eurasia Group analyst."They need financing from outside sources and this makes sense for them."

But there's little excitement about the idea among today's conventional venture capitalists. Many are acutely aware that Scotland would still be independent if the country hadn't bankrupted itself – and had to turn to England for a bail out – over a similar venture in the early 18th century.

That's not how many Chinese see things, though. Chinese funding and Chinese engineering has carved a 550km railway to Tibet, rebuilt Angola's railways and is busy erecting a giant industrial port in Brazil. Chinese money could be a real boost to Colombia – even if the railway never makes any money (as an extraordinary number of Chinese infrastructure projects probably don't)

But it's no concern to the Colombians if China throws its money away. US legislators argue about Colombia's human rights record, pointing out that more trade unionists get killed there than anywhere else on earth, and the detection rate – 14% - is terrible. The Economist magazine, however, claims Colombian unionists are less likely to be killed than non-unionists and 14% is well above Colombia's normal clean-up rate for murder. The problem isn't a campaign again unions: it's Colombia's propensity to homicide – the result of its drugs trade, which in turn is at least partly down to its low level of real industry. An Atlantic to Pacific railway line can only help Colombia's real problems.

Americans seem determined, from the point of view of Colombians, to lecture, obstruct – and still do nothing that might facilitate trade. But ironically, the US deficit Colombia's garment exports to the US in the fourth quarter of 2010, for example, were 9% down on 2009 - and represented just 0.3% of America's apparel imports. Colombia's future may well not be in exporting manufactures to the local superpower at all anyway. Meanwhile, the Chinese just want to get on with building things.

Who would you rather do business with?