(Bloomberg) -- Nations with robust global trade networks may be better prepared to withstand extreme weather shocks in the next two decades, according to new research.
Scientists affiliated with the Potsdam Institute for Climate Impact Research and Columbia University broke new ground by assessing how river flooding pulsates through global supply chains. The conclusions, published in the journal Nature Climate Change, are timely given the recent trade disputes between the U.S. and China.
However U.S.-China relations evolve, flood risks are expected to rise. Rough estimates of direct global losses across sectors due to flooding may grow to almost $600 billion from 2016 to 2035, the authors say. That’s triple their figure for 1976-1995.
River flooding is a function of changing precipitation trends along with how and where cities are built. Based on those factors, the U.S. and the European Union before 2035 face far lower direct flooding risk than China, where such damages can be expected to rise by 80 percent.
“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.”
When President Donald Trump explained the actions he sought against China, he did not cast it as a move toward inwardness and isolationism, but as a defensive posture. “Addressing unfair trade practices and ensuring that global trade is free, fair and reciprocal will have a significant positive long-term impact on the U.S. economy,” the White House said in a April 6 statement.
When a production center is hit by catastrophe, the pain can cascade through large trade networks, exacerbating losses near or far. More robust trade can also make it significantly more likely that when facilities in one location are flooded, their work will nimbly shift to an unaffected area, according to the study. Which of these trends comes to pass depends on how bad the flooding is, the affected area’s role in a supply chain and, “the nature of trade relations” among nations.
The three researchers took two snapshots of the global trade system, in 2002 and then in 2012. In 2002, the EU and U.S. faced imbalanced trade relationships with China, they wrote. But by 2012, when they both still ran deficits, the Europeans had increased their exports to China significantly more than the U.S. had. The new trade structure may leave Americans at greater risk of indirect losses if Chinese economic centers are put out of work even temporarily.
The changes in European and Chinese trade may have made their network more resilient to shocks. “The European Union is in a better position to increase exports and temporally replace affected Chinese producers” during and after floods relative to the US, the study found.
The paper’s general conclusions come across as sound, with some caveats or limitations, according to Michael Delgado, senior analyst at Rhodium Group LLC, in Oakland. The authors excluded the service sector from the analysis. By using only five global climate models, they may not have captured tricky nuances of heavy rainfall and subsequent flooding. And lastly, in the real world, impacts won’t necessarily happen one at a time—a flood may occur in one location on a given day, and a deadly heatwave may strike elsewhere the next.
Given the nature of the research, which combined the world’s most powerful climate models with population, economic and hydrological statistics, Levermann said that the main takeaway is necessarily descriptive. The team has less confidence in those future damage numbers than in the bottom line.
“The main message of the paper,” he said, “is this qualitative statement: If you are concerned about weather extremes, it’s better to have a balanced trade relationship.”
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