Researchers with the Potsdam Institute for Climate Impact Research and Columbia University looked at two totally different issues affecting the global economy today — regionalized river flooding and its impact on world trade and global supply chains, reports Bloomberg News.
This interesting and thought-provoking study was published in the online journal Nature Climate Change May 28, 2018. The study is based on projections of river floods on regional scales. driven by anthropogenic greenhouse gas emissions. The authors investigated the international economic response to flood-related shocks using a specifically designed dynamic computer simulation.
Regional floods and trade relations with China
As Bloomberg points out, the study is especially relevant due to the ongoing trade disputes between China and the United States. And regardless of how the dispute turns out, the study’s authors conclude that without major remedial measures, China could suffer huge losses from river flooding.
The monetary losses to China could add up to more than $380 billion over 20 years, or about 5.0 percent of the country’s annual economic output. And this includes natural flooding not associated with climate change. As for global losses, the figure is estimated at around $600 billion over 20 years.
“This will be the damage in China, but it will be transported via trade routes and supply chains to other parts of the world,” said Anders Levermann, a professor of climate dynamics. “We started this work two years ago, so it’s a coincidence that this fits precisely into the trade war debate. The answer is not isolationism. The answer is getting better trade relations.”
And the U.S. economy is specifically vulnerable because of its unbalanced trade relations with China. Interestingly, the study suggests that President Donald Trump’s current trade sanctions and threats of additional tariffs go contrary to what is needed – stronger and more balanced trade relations with China.
Global trade will act as a buffer with some interesting winners
According to the study, “recent intensification of the trade relations with China leaves the European Union better prepared for the import of production losses in the future.”
“Not only local industries will be affected by these climate impacts,” says Sven Willner, lead author of the study from PIK. “Through supply shortages, changes in demand and associated price signals, economic losses might be down-streamed along the global trade and supply network affecting other economies on a global scale — we were surprised about the size of this rather worrying effect.”
“More intense global trade can help to mitigate losses from local extreme events by facilitating market adjustments,” explains co-author Christian Otto from the Potsdam Institute and Columbia University.
Basically, this means that when a supplier, say, China, is impacted by flooding, because of international trade, other suppliers can step in and temporarily replace those supplies. But the study suggests that as regional flooding increases, economies like India, South East Asia, or Australia could end up seeing net gains.
It boils down to the U.S. being worse off for not climate-proofing the economy. And that is one issue that Trump won’t be thinking about, especially with his anti-climate science ideology. And we all know that with trade relations, it comes down to either isolation or a balanced trade agreement.
“By introducing a tariff plan against China, Trump currently goes for isolation,” says Levermann. “But Trump’s tariff sanctions are likely to leave US economy even more vulnerable to climate change. As our study suggests, under climate change, the more reasonable strategy is a well-balanced economic connectivity, because it allows compensating economic damages from unexpected weather events — of which we expect more in the future.”
