The Panama Canal was already one of the most difficult engineering projects in the history of the human race, and involved thousands of deaths. Even today, the jungle around it is one of the world’s most inhospitable, full of nasty tropical diseases, impassable forested mountains, and some of the most undisturbed natural environments on Earth. No one really wanted to make it harder than it already was.
In fact, the French had tried to do exactly what you suggest. After 20,000 deaths and huge expenditures, they’d laid the foundation for most of the southern half of the current canal system before realizing that the sea-level plan wasn’t viable. What you’re talking about here is cutting a sea-level track through a mountain range in such a way that it won’t collapse, and that requires a tremendous amount of earth-moving – more than the huge amount that would be required even for the much easier later design.
So the American crews that took over later swapped to a design that was wider but shallower, which was still one of the harder bits of engineering ever done, and ended up producing what is today known as the [Culebra Cut](https://en.wikipedia.org/wiki/Culebra_Cut) section of the canal.
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