Climate Risk and Supply-Chain Resilience: How Environmental Disruptions Affect SME Performance and International Trade

Heat, floods, cyclones, droughts, and port disruptions increasingly threaten the supply chains on which small and medium-sized enterprises (SMEs) depend, affecting firm performance and international trade. This study synthesizes peer-reviewed evidence published before 1 January 2025 on climate and weather shocks, production networks,
trade costs, and SME disaster recovery. It develops a framework tracing disruptions from hazards, exposure, and vulnerability through supply-chain propagation to SME performance and trade outcomes. The analysis highlights how disruptions at suppliers can affect customer firms, how indirect losses may spread through production networks,
how delays increase trade costs, and how rising temperatures can constrain export growth in vulnerable economies. Evidence specifically focused on SMEs remains comparatively limited and is often case-based. The paper contributes illustrative analytical models of resilience loss, regional supplier diversification, input specificity
and cost pass-through, cost-minimizing inventory buffers, survival under cash and inventory constraints, the tradeequivalent cost of delays, buyer retention, and the benefits and costs of adaptation. These models illustrate how SMEs with higher costs of capital may hold smaller inventory buffers and face lower survival probabilities. They
also demonstrate that supplier diversification reduces joint disruption risk most effectively when suppliers operate across different hazard regions. In addition, the paper proposes an SME Supply-Chain Resilience Index (SCRI), five research propositions, and an empirical design for firm-level testing. All numerical illustrations use assumed
parameters and should not be interpreted as empirical estimates. The central implication is that SME trade resilience depends not only on avoiding hazards but also on maintaining adequate operational buffers, diversifying suppliers across hazard regions, and improving access to finance.