Published on May 30th, 2018 | by Steve Hanley0
Local Flooding In China Could Have Negative Impact On US Economy, Says Potsdam Institute
May 30th, 2018 by Steve Hanley
For better or worse, the economies of the world’s nations are now more intertwined than ever before in history, which means local conditions can have global impacts. The Potsdam Institute For Climate Impact Research, commonly known as PIK, has published new research in the journal Nature Climate Change which suggests the impact of local climate change related weather events — such as flooding along China’s rivers — could create ripple effects that disrupt economies around the world. Here is the abstract of the study, which is unfortunately protected by a pay wall.
“Increasing Earth’s surface air temperature yields an intensification of its hydrological cycle. As a consequence, the risk of river floods will increase regionally within the next two decades due to the atmospheric warming caused by past anthropogenic greenhouse gas emissions. The direct economic losses caused by these floods can yield regionally heterogeneous losses and gains by propagation within the global trade and supply network.
“Here we show that, in the absence of large-scale structural adaptation, the total economic losses due to fluvial floods will increase in the next 20 years globally by 17% despite partial compensation through market adjustment within the global trade network. China will suffer the strongest direct losses, with an increase of 82%. The United States is mostly affected indirectly through its trade relations. By contrast to the United States, recent intensification of the trade relations with China leaves the European Union better prepared for the import of production losses in the future.”
The PIK Study
“Not only local industries will be affected by these climate impacts,” says Sven Willner, lead author of the PIK study. “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.”
The study is based on projections of near term river floods on a regional scale already determined by the greenhouse gas emissions that humans have so far emitted into our atmosphere. Impacts after 2035 will depend on future additional emissions. It investigates the overall economic network response to the economic impact of river floods and takes into account the dynamics of international trade using Acclimate, a new dynamic economic computer modeling tool.
The World Bank Agrees With PIK
Stéphane Hallegatte is the lead economist with the World Bank’s Global Facility for Disaster Reduction and Recovery. He has been a leader in studying the indirect effects of weather related disasters and was not involved in the PIK research. “This work combines two very innovative lines of work: global risk assessment for natural hazards and network theory to understand how localized shocks propagate in time and space,” he says.
“It contributes to scientific progress in multiple ways, but one of the most important policy messages for me is that the world is so interconnected that natural disasters are not local events anymore. Everybody can be affected by a disaster occurring far away. It means that risk management is more than each country’s responsibility. It has become a global public good.”
Economics And Politics
Economics and politics are inextricably intertwined. Anders Levermann of PIK adds this political component to the study. “We find that the intensification of the mutual trade relation with China leaves the EU better prepared against production losses in Asia than the US. The prospect that the US will be worse off can be traced back to the fact that it is importing more products from China than it is exporting. Interestingly, such an unbalanced trade relation might be an economic risk for the US when it comes to climate-related economic losses. In the end, Trump’s tariffs might impede climate-proofing the US economy.”
For resolving such risks and balancing out the negative trade relation, there are generally two options: more isolation or more trade. “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 to compensate economic damages from unexpected weather events – of which we expect more in the future.”
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