Welcome to the global economic barbeque

The world and economy are on fire, literally and figuratively. (Photo: NPS Climate Change Response via Flickr)

China is experiencing its worst heat wave in 60 years, and it’s flambéing with it the rest of our hopes of avoiding a global recession.

How so? Let’s start from the root cause: the supply chain.

As of writing, the heat wave has been going on for 75 days and counting in over 260 locations. In Sichuan province, one of China’s key manufacturing hubs, droughts are depleting the hydropower stores which the region is 80% dependent on. Following power rations over the heat wave, chip and solar panel factories in the Sichuan province were shut down. The move affects factories belonging to companies like Tesla, Apple, Toyota, and more. 

But our iPhones held up in a factory somewhere in China aren’t the only ones at stake here. 

Over in California, processed tomato product plants took a blow due to a lack of rain while Amazon workers are starting to walk out partially in protest of heat exhaustion. In Europe, dairy and meat prices rise even higher as lands for grazing and growing grain for feed dry out. In the Philippines, it’s turned into a full-blown sugar crisis that’s involved everyone from the president to your soda-loving friend.

Obviously climate change isn’t happening in a vacuum, and elsewhere, heat waves plus its cousins—heavy rainfall, flooding, droughts—are eroding agriculture, infrastructure, and workers' ability to stay on the job. When raw supplies are low and workers’ demands are high, companies have to spend more to keep their businesses running. 

“Workers facing more strenuous conditions tend to command a higher wage,” said Solomon Hsiang, a professor of public policy at University of California, Berkeley.

A fizzle, not a bang, for our buck

Along the line, those extra costs are imposed on us, the consumers. This would explain why something as close to home as, say, a popular meal at my university is now more than double the price it was when I was a freshman nearly a decade ago. It won’t explain, however, why there are still no wage hikes despite sweet potato, a staple food among minimum wage earners, now costing almost 10% of their daily salary.

"Put simply, it's the extremely high rates of inflation that is resulting in households having to pay more for the goods and services they have to buy which means they have less to spend on other items," said Paul Dales, Chief UK Economist at Capital Economics.

With generation-high inflation and tightening central bank policies, outlooks for economic growth are sour among experts. Purchasing managers across Asia, Europe, and the US published surveys last Tuesday showing less business activity and chances of recovery anytime soon.

Also, a Reuters poll that ran last Monday projected a 45% chance of a US recession within a year and 50% within two years. Economists said it would be “short and shallow,” but we know what a recession in one of the world’s largest economies would mean for the rest of us.

Don't forget about COVID

If we really want to go macro with it, we could even account COVID-19's role in all this. While lockdowns disrupting supply chains are not new news, there’s still the stake climate change has had in starting COVID-19 in the first place.

While there is no direct, proven link between COVID-19 and climate change yet, research by the Harvard School of Public Health shows “many of the root causes of climate change also increase the risk of pandemics.” Loss of habitat due to deforestation and resulting calamities like wildfires and flooding all “force animals to migrate and potentially contact other animals or people and share germs”—that is, if people don’t hunt them down to be sold as wild game or pets first.

Long story short, weather all over the world and grocery tabs are crazy these days. Less spending means less business, so “a reduction in economic output” is “driving the recession” as Dales put it. 

In millennial speak, the best way through is treating myself to an iced coffee to help beat the heat and my work deadlines while I can still afford it.