Globalization has made our economies more vulnerable to climate change

Extreme weather events – droughts, heatwaves, floods or storms – are typically pictured as something certainly devastating but restricted to a particular area and in many cases a far-distant one. It’s what happens to others. Yet, in our age of globalization, the economic effects of climatic extremes are not necessarily locally confined. They can reverberate throughout the world. What happens in a country that we are linked to by trade also happens to us, though of course to a lesser extent.

The disastrous 2011 monsoon flood in Thailand, for example, strongly affected the country’s high-tech sector – some production facilities were literally under water – resulting in a shortage of hard drives. In 2013, Typhoon Haiyan in the Philippines destroyed a large share of the world’s production of coconut oil, which is one of the two most commonly used vegetable fats in food production worldwide.

This of course also holds true for non-climatic extreme events, like the Japanese tsunami and earthquake in 2011 that had wide consequences on production and exports in the car industry. Yet, weather disasters are different to earthquakes – their numbers go up. By emitting greenhouse-gases from fossil fuels, we are destabilizing the climate system.

Shocks like these are eye-openers, or at least they should be. In the course of modern rapid globalization, a complex network of world-spanning supply and value-added chains has emerged. The production process of a single item may involve facilities from all over the world. As a consequence, climate-induced losses in one place can cause further losses elsewhere by rippling through the supply chain. And as climate-related weather disasters increase, so will these effects.

In a study recently published in Science Advances, Anders Levermann and I analysed how climate-related production losses in one place may propagate through a complex network of global supply chains to affect production in other places. We focused on production reductions that can occur when workers are affected by heat-stress, but our analysis is likely to show similar results for other climatic disturbances.

Previous research has found that the productivity of workers in industries like mining, construction, or forestry, where air-conditioning is difficult to put in place, decreases on very hot days – the workers simply get exhausted more rapidly.

Based on this work, we ran computer simulations of the consequences of heat stress, combining temperature, population and global trade data from 1991 to 2011. We covered economic flows between 26 industry sectors – from mining and quarrying to textiles and apparel – as well as final demand in 186 countries.

Distinguishing between production losses which directly resulted from the effects of heat stress and production losses due to cascading effects, we found that the susceptibility of the global economic network to the propagation of production loss increased over time – particularly from 2001 onwards, as this figure shows.

Total production losses per year as a share of the global annual production volume. Numbers do not represent quantifications of actual losses but are an indicator of the network’s susceptibility.

Surprisingly, this trend could not be explained by the temperature profile, which changed considerably in the 1990s but less so in the 2000s (before surging again in the 2010s). Instead, we found that changes in the structure of the economic network were the driving factor behind the increase in heat stress induced losses. Since the beginning of this century, global economic connectivity increased – production in countries throughout the world became much more dependent on supply from other countries. Production losses because of heat stress in one place had a bigger ripple effect in other countries. The influence of this structural change had a bigger influence than the effect of the warming during this decade.

Our findings stress that the negative effects of climate change not only depend on the warming of our planet but also on the resilience of our societies and our global economy. While the absolute production losses observed in our study are small at this point, the rate of change in the last decade – the susceptibility of the global economic network to workers’ heat-stress has doubled – points to the growing risks as the world warms.

In order to implement appropriate adaptation measures that factor in weather extremes in distant places, a better understanding of the global economic impacts of more frequent heatwaves, floods, tropical storms and the like, as well as their relation to the economic network’s structure, is required.

This is also important for a comprehensive assessment of the costs of future effects of climate change. What we see is that these costs clearly do not respect national borders. When it comes to climate impacts, it really is one world.

This article is part of our globalization series. You can read more here.

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