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Climate Change Could Worsen Supply Chain Turmoil

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Factories in China closed again in late August. This is happening frequently in countries that have imposed intermittent lockdowns to combat the coronavirus. But this time the culprit was not the pandemic. Instead, a record drought has paralyzed economic activity in southwestern China, freezing his international supply chain of cars, electronics and other commodities.

For companies sourcing parts and products from around the world, such disruptions could soon become frequent, with climate change and associated extreme weather events making the global distribution system for goods extremely difficult. Economists and trade experts warn that it will continue to be disrupted in unpredictable ways. .

Much is still unknown about how rapid global warming will affect agriculture, economic activity and trade in the coming decades. But there is a clear trend that natural disasters such as droughts, hurricanes and wildfires are occurring more frequently and in more places. In addition to human casualties and fatalities, these disasters can wreak sporadic havoc on global supply chains, exacerbating shortages, delayed deliveries and rising prices that frustrate businesses and consumers. .

“What we’ve experienced with Covid is a window into what the climate can do,” said Kyle Meng, an associate professor in the Bren School of Environmental Science and Management at the University of California, Santa Barbara.

The global supply chain that has sprung up in recent decades is the study of modern efficiency, moving products such as electronics, chemicals, sofas and food across continents and oceans at ever-lower costs. I’m here.

But those networks proved vulnerable, first during the pandemic and then as a result of Russia’s invasion of Ukraine, and companies struggled to source goods amid factory and port closures. The shortage is driving prices skyrocketing and fueling rapid inflation around the world.

The drought in southwest China is having knock-on effects for global companies as well. Hydropower production in the region has dropped significantly, causing factory blackouts and disruptions to supply chains for electronics, auto parts and other commodities. Volkswagen and Toyota cut production at nearby plants, as did electronics maker Foxconn and electric vehicle battery maker CATL.

The water level of the Yangtze River, which bisects China, has become so low that ocean-going vessels sailing upstream of the Yangtze River can no longer navigate during the rainy summer and early winter months.

Businesses urgently needed trucks to carry their goods to Chinese ports, and Chinese food importers sought more trucks and trains to carry their cargo into the country.heat and drought Many vegetables have wilted in southwestern China, nearly doubling prices, making it harder for surviving pigs and poultry to gain weight, driving up meat prices. ‌

Recent rainfall has temporarily restored power to homes and businesses in western China. But the drought continues across much of central and western China, leaving reservoirs at just one-third of their normal level.

This means less water for hydropower, but also for local chemical plants and coal-fired power plants that require large amounts of water for cooling.

Zhao Zhiqiang, deputy director of the China Meteorological Administration’s Weather Modification Center, said at a press conference on Tuesday that China is using drones to seed clouds with silver iodide to make it rain more. rice field.

At the same time, the coronavirus and China’s Covid-zero policy claims continue to pose supply chain risks by restricting movement in large parts of the country. Locked down Chengdu, a city of more than 21 million people, to crack down on the coronavirus outbreak.

These frequent disruptions to China’s manufacturing and logistics industries have led global executives and policy makers to believe that many of the world’s factories are too geographically concentrated, leaving them vulnerable to pandemics and natural disasters. There is growing concern that

The Biden administration said Tuesday in a plan outlining how the U.S. would bolster the semiconductor industry, the industry is in turmoil due to climate change, pandemics and war as chip makers are now concentrated in Southeast Asia. said to be vulnerable to

However, setting up factories in other parts of the world to offset these risks can be costly for both businesses and consumers, and businesses pass on that cost in the form of higher prices. Meng said just as the pandemic has led to higher consumer prices, climate change could rise as well, especially if extreme weather events affect large parts of the world at the same time. .

Businesses may also face new costs from carbon taxes when shipping goods across borders, and higher transportation costs for moving products by sea or air, experts say. increase. Both sea and air freight are major sources of gases that contribute to climate change, accounting for about 5% of global carbon emissions. Companies in both sectors are looking to find cleaner fuel sources quickly, but that transition could require significant investments that could drive up prices for customers.

The natural disasters and coronavirus lockdowns in China have been particularly painful given that China is home to much of the world’s manufacturing industry. But the United States is also feeling the growing impact of extreme weather.

Years of drought in much of the western United States have weighed on U.S. agricultural exports. Wildfires on the West Coast have disrupted the logistics of companies such as Amazon. Last year, winter storms and power outages shut down semiconductor factories in Texas, exacerbating the global chip shortage.

White House economists warned in a report this year that climate change will make future disruptions to global supply chains more common. research It shows that the global frequency of natural disasters has almost tripled in recent decades.

“As networks become more connected and climate change worsens, the frequency and magnitude of supply chain-related disasters will increase,” said the report.

National Environmental Information CenterThe federal agency estimates that the number of multi-billion dollar disasters in the United States each year has surged to an average of 20 over the past two years. This includes severe storms, cyclones and floods. In the 1980s, it was only about three times a year.

Scholars say the effects of these disasters, and the effects of rising temperatures in general, will be particularly evident when it comes to the food trade. Some parts of the world, such as Russia, Scandinavia, and Canada, will be able to produce more grains and other food crops to feed their countries as global temperatures rise.

However, these production bases are far from the hotter and more densely populated regions near the equator. Some of these regions may suffer even more poverty and food insecurity than they do today.

One danger is increased competition for food, which could lead countries to adopt protectionist policies to limit or halt food exports, as they did in response to the pandemic and Russia’s invasion of Ukraine. It is a matter of nature. These export restrictions allow countries to feed their own populations, but they tend to exacerbate international shortages, pushing up food prices and making the problem even worse.

The World Trade Organization has urged countries to keep trade open to deal with the adverse effects of climate change, citing the damage that protectionist policies can cause.

of 2018 reportthe WTO noted that the global food trade is particularly vulnerable to transport disruptions that may occur as a result of climate change, such as rising sea levels that threaten ports and the deterioration of roads and bridges. More than half of the grain traded in the United States passes through at least one of 14 global “chokepoints” including the Panama Canal, the Strait of Malacca and the Black Sea railroad network, the report said.

WTO Director-General Ngozi Okonjo-Iweala said trade is a “mechanism for adaptation and resilience” that helps countries cope with crop failures and natural disasters. In a January speech, she said climate change is on track to contribute to severe malnutrition, with as many as 55 million people at risk by 2050 due to local impacts on food production. But that number could drop by 35 million if trade expands, she said.

“Trade is not so much part of the problem as it is part of the solution to the challenges we face,” Okonjo Iweala said.

Solomon Hsiang, Chancellor Professor of Public Policy at the University of California, Berkeley, and co-director of the Climate Impact Lab, said trade makes the world more resilient to these disasters, but also more vulnerable. Agreed that it is possible.

In some circumstances, trade can help mitigate the impacts of climate change. For example, enabling communities to import food when local crops fail due to drought.

“That’s the positive side of the ledger,” Shang said. “But the downside, as we all know really well, is that we are interconnected through our supply chains, so events on one side of the world can have dramatic effects on people’s well-being elsewhere. It can have an impact.”

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