Chinese factories were closed again in late August, a frequent occurrence in a country that has imposed intermittent lockdowns to fight the coronavirus. But this time the pandemic was not the culprit. Instead, a record-breaking drought paralyzed economic activity across southwestern China, freezing international supply chains for automobiles, electronics and other goods that have been routinely disrupted over the past three years.
Such disruptions may soon become more frequent for companies purchasing parts and products from around the world as climate change and the extreme weather events accompanying it continue to disrupt the global goods delivery system in highly unpredictable ways, economists and experts warn. of trade.
Much remains unknown about how rapid global warming will affect agriculture, economic activity and trade in the coming decades. But a clear trend is that natural disasters like droughts, hurricanes and fires are becoming more frequent and spreading to more locations. In addition to the number of human deaths and injuries, these disasters are likely to wreak sporadic chaos in global supply chains, exacerbating the shortages, delivery delays and higher prices that have frustrated businesses and consumers.
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“What we just went through with COVID is a window into what the climate could do,” said Kyle Meng, an associate professor at the Bren School of Environmental Science and Management and the Department of Economics at the University of California, Santa. Barbara.
The supply chains that have spanned the world over the past few decades are studies of modern efficiency, blasting products like electronics, chemicals, sofas and food across continents and oceans at increasingly affordable costs.
But those networks proved fragile, first during the pandemic and then following the Russian invasion of Ukraine, with companies struggling to procure goods due to the closure of factories and ports. With products in short supply, prices have risen, fueling rapid inflation around the world.
The drought in southwestern China has had ripple effects for global businesses as well. It has drastically reduced hydroelectric power generation in the region, requiring power outages to factories and confusing supply chains for electronics, car parts and other goods. Volkswagen and Toyota cut production at nearby factories, as did Foxconn, which makes electronics, and CATL, a manufacturer of electric car batteries.
The Yangtze River, which divides China in two, dipped so low that ocean vessels that typically cross its upper reaches from rainy summer to early winter could no longer circulate.
Companies had to rush to secure trucks to move their goods to Chinese ports, as Chinese food importers looked for more trucks and trains to transport their goods into the country’s interior. The heat and drought wilted many of the vegetables in southwestern China, nearly doubling prices, and made it difficult for surviving pigs and poultry to gain weight, driving up meat prices.
Recent rains have made it possible to temporarily restore electricity to homes and businesses in western China. But drought persists across much of central and western China, and reservoirs remain at a third of their usual level.
This means less water not only for hydroelectricity, but also for the region’s chemical factories and coal-fired power plants, which need huge amounts of water for cooling.
China has even resorted to using drones to seed clouds with silver iodide in an effort to trigger more rain, Zhao Zhiqiang, deputy director of the Chinese Meteorological Administration’s Meteorological Modification Center, said at a news conference Tuesday.
At the same time, the coronavirus and China’s insistence on a zero-COVID policy continue to pose risks to the supply chain by limiting movement to significant portions of the country. On Thursday, Chinese authorities blocked Chengdu, a city of over 21 million inhabitants in southwestern China, to quell coronavirus outbreaks.
These frequent disruptions in Chinese manufacturing and logistics have increased concerns among global executives and policymakers that many of the world’s factories are too geographically concentrated, making them vulnerable to pandemics and natural disasters.
The Biden administration, in a plan released Tuesday outlining how the United States intends to strengthen its semiconductor industry, said the current concentration of chip makers in Southeast Asia has left the industry vulnerable to disruptions due to the climate change, pandemics and war.
But setting up factories in other parts of the world to offset these risks could be costly, both for businesses and consumers to which companies will pass their costs on in the form of higher prices. Just as the pandemic has led to higher prices for consumers, Meng said, so could climate change, particularly if extreme weather affects large areas of the world at the same time.
Businesses may also face new costs from carbon taxes when shipping goods across the border, as well as higher transportation costs for moving products by sea or air, experts say. Both shipping and air transport are the main producers of gases that contribute to climate change, accounting for around 5% of global carbon emissions. Companies in both industries are rapidly trying to find cleaner fuel sources, but such a transition is likely to require large investments that could drive up prices for their customers.
Natural disasters and the coronavirus freeze in China have been particularly painful, as the country hosts much of the world’s production. But the United States has also suffered from the growing impacts of extreme weather conditions.
A multi-year drought across much of the western United States weighed on U.S. agricultural exports. The west coast fires have confused logistics for companies like Amazon. Winter storms and power outages closed semiconductor plants in Texas last year, adding to the global chip shortage.
White House economists warned in a report this year that climate change would make future disruptions to global supply chains more common, citing research showing that the global frequency of natural disasters has increased nearly threefold in recent decades. .
“As grids become more connected and climate change worsens, the frequency and scale of supply chain disasters increases,” the report said.
The National Centers for Environmental Information, a federal agency, estimates that the number of billion-dollar disasters occurring in the United States each year has skyrocketed to an average of 20 over the past two years, including severe storms, cyclones and floods. In the 1980s there were only three a year.
Academics say the effect of these disasters and higher temperatures in general will be particularly noticeable when it comes to the food trade. Some parts of the world, such as Russia, Scandinavia, and Canada, may be producing more grains and other food crops to feed countries as global temperatures rise.
But those manufacturing centers would be further away from the warmer, densely populated areas closest to the equator. Some of these regions may struggle even more than they do now with poverty and food insecurity.
One danger is that growing competition for food may encourage countries to introduce protectionist policies that limit or stop food exports, as some have done in response to the pandemic and the Russian invasion of Ukraine. These export restrictions allow a country to feed its own population, but they tend to exacerbate international shortages and drive up food prices, further exacerbating the problem.
The World Trade Organization, citing the damage protectionist policies could do, urged countries to keep trade open to combat the negative effects of climate change.
In a 2018 report, the WTO stressed that the global food trade is particularly vulnerable to transport disruptions that could occur due to climate change, such as sea level rise that threatens ports or deterioration of roads and of bridges by extreme weather conditions. More than half of the grains traded globally pass through at least one of 14 global “choke points,” including the Panama Canal, the Strait of Malacca or the Black Sea rail network, the report said.
Ngozi Okonjo-Iweala, director-general of the WTO, described trade as “a mechanism of adaptation and resilience” that can help countries cope with crop failures and natural disasters. In a January speech, he cited economic models that climate change was on track to contribute to severe malnutrition, with as many as 55 million people at risk by 2050 due to local effects on food production. But more trade could reduce that number by 35 million people, he told her.
“Trade is part of the solution to the challenges we face, much more than it is part of the problem,” said Okonjo-Iweala.
Solomon Hsiang, Chancellor’s public policy professor at the University of California, Berkeley, and co-director of the Climate Impact Lab, agreed that trade could simultaneously make the world more resilient to these disasters and more vulnerable.
In some situations, trade can help mitigate the effects of climate change, for example by allowing communities to import food when local crops fail due to a drought, he said.
“This is the bright side of the ledger,” Hsiang said. “But the downside is that, as everyone understands very well, we are so interconnected by our supply chains that events on one side of the world can have a dramatic impact on the well-being of people elsewhere.”
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