Disaster response and trade restrictions: Implications from a numerical model

An interesting implication of the contagion of shocks within supply chains is that the beneficial effects of government support to enhance the resilience of supply chains can be magnified beyond the direct recipients to other firms in the value chain (Kashiwagi and Todo 2020). For example, after the earthquake in Japan, subsidies that were provided to small and medium enterprises to support the repair and reinstallation of damaged capital goods and facilities indirectly benefited other firms in disasteraffected areas linked through supply chains that did not receive any subsidy. It would be interesting to establish whether, in cases where global value chains link firms across countries, government interventions targeting national firms also have had some benefit for linked firms in other countries.

However, very few studies have looked explicitly at the impact of extreme weather shocks and adjustments within global value chains on firms in, and the trade of, low- and middle-income countries. Initial evidence on the impact of the COVID19 crisis suggests that the trade flows of poorer countries are more likely to cease than those of richer countries.9 If firms in low- and middle-income countries face higher costs to find substitute suppliers or buyers, they will probably be affected more severely by extreme weather events that compromise existing sources of raw materials or intermediate inputs or major markets for their product. In addition, impacts on small low- and middle-income countries, especially island economies, will tend to be augmented by the limited trade-related transport and logistics. Many low- and middle-income countries are dependent on a single port of entry or a single trade corridor, which can be severely disrupted by severe weather and alternative routes or ports are not available.

As the pandemic and global warming continue, there is a growing probability that COVID-19 surges and extreme weather events, such as flooding, will collide (Phillips et al. 2020). Assessing the risks of a pandemic and extreme weather events separately may mask significant vulnerabilities that appear only in a multihazard framework. Such a perspective is likely to be particularly useful from a global trade perspective since the global trade network will be particularly important when countries are affected by major shocks from which they cannot recover without help. With limited discipline on trade restrictions, such as barriers to exports, there is the added risk that trade policy decisions will deepen the adverse impact of these compound events and slow the recovery. Measures to combat one crisis may jeopardize measures to combat another one and ultimately exacerbate the negative impacts of both. The interaction between pandemic control and flood responses is different than that between two flood events. Flood events are usually sudden or rapid-onset events that require immediate emergency measures, while pandemics last longer, and the corresponding control measures of various durations could coincide with different flood periods. These differences in responses between pandemics and multiflood situations increase the complexity of economic impact assessment. An approach is required that considers not only the parallel threats of individual hazards on population and physical assets but also the side effects of virus containment on postflood recovery and the role of trade in disaster recovery (box 3.1).