Not-So-Natural Disasters and International Trade | Opinion

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The number and frequency of natural disasters has markedly increased over the past decades, with climate change being one of the factors influencing this trend, especially in terms of hydro-meteorological disasters such as floods and droughts. The figure is close to 12,000 disasters over the period 1980-2018, and the economic cost of these disasters exceeds three trillion dollars, according to the International Disaster Database (EM-DAT).

By country, although the United States ranks first in terms of frequency and economic damage caused, followed by China and India, the impact of disasters per capita or as a percentage of gross domestic product (GDP ) indicates that the smallest and most vulnerable economies suffer the greatest losses. These account for up to 2% of GDP per year in Caribbean countries, while least developed countries (LDCs) are the most affected income group. When the frequency of such events increases, it acts as a brake on economic development, which is closely linked to external openness. An important question is how natural disasters – especially those induced by climate change – and international trade interact.

According to a recent study commissioned by the World Trade Organization, these disasters interact with international trade in very complex ways. From a macroeconomic perspective, a natural disaster triggers resource destruction and a supply shock, resulting in reduced output and employment. From the micro point of view, it affects all economic agents: companies have to face the destruction of their physical and human capital, workers face health problems and job losses, and finally, the State must contribute to the financing of the losses suffered by both parties.

Trade enters into this puzzle on both the supply and demand side of the economy. Obviously, reduced production means that exports fall, not only due to damage to exporting companies, but also to the destruction of transport infrastructure. In terms of demand, imports can temporarily act as a buffer, replacing domestic production and facilitating recovery. However, the fall in exports and the rise in imports would imply a deterioration in the trade balance. Moreover, if the economy that suffers the disaster is integrated into global value chains, indirect effects are generated for the members of these chains, the intensity of which depends on the position in the chain and the productive specialization of the country. touch. For example, small and medium enterprises in developing countries that specialize in intermediate inputs can create bottlenecks in value chains.

International trade and trade policy can be good ingredients to mitigate the effects of natural disasters linked to climate change

Just as trade helps with supply shortages in the country concerned, having a diverse network of suppliers is an advantage for all actors in the chain. An open trading system therefore promotes resilience to natural disasters and countries with integrated and competitive markets. Likewise, sectors that are not dependent on a single supplier recover faster. As the case of the European Union illustrates, not being heavily dependent on the outside world is an advantage.

With regard to trade policy measures that can contribute to the recovery of the affected country, the immediate response could be to offer special preferences to reduce the cost of imports. Similarly, technical assistance could be offered to facilitate exchanges. For example, the EU temporarily eliminated customs duties on imports from Pakistan following the 2010 floods. Also, exit from LDC status, which implies exit from the Generalized System of Preferences, has been postponed. in several countries that have experienced natural disasters (Maldives following the 2004 tsunami, Samoa following a tsunami and a tropical cyclone) . Finally, measures to build resilience should be based on enhanced international cooperation that goes beyond trade policy. In this regard, the Sendai Framework for Action 2015-2030 aims to reduce disaster risks and losses and promote an international disaster management plan to increase the resilience of value chains.

In short, international trade and trade policy can be good ingredients in mitigating the effects of natural disasters linked to climate change. While the progress of initiatives at the international level is positive, there is a need to improve coherence and coordination between programs by building bridges between disaster risk management and multilateral trade policies.

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