The Population Bust and the Market for “Stuff”

Preserving factory jobs is a perennial political imperative almost everywhere. Manufacturing has a prominent place in the political discourse – and beware the politician who suggests otherwise.  

This thinking shapes trade policy, which is overwhelmingly devoted to rules governing the exchange of goods made in factories.  

From boom to bust 

But in a world in which the population boom has turned to bust, this orientation is misplaced.  

With populations now shrinking in many countries, we are looking towards a future in which the demand for goods is likely to be far from robust. 

In many countries, consumer spending on services is outpacing spending on goods by a considerable margin – due in good part to the declining number of new families and the increasing number of older people.  

The European Union’s population is shrinking faster than was projected just a few years ago. The same is true in China, Japan and Korea.  

According to the CIA, the fertility rate is now below the replacement level in Bangladesh, Vietnam, Tunisia, Colombia and 127 other countries.  

Sub-Saharan Africa is just about the only region where populations are still growing rapidly. 

The slow demise of the family  

Fewer new families – the prime purchasers of consumer durables – are being formed in almost every middle-income and upper-income country. 

In many of these countries, population stagnation or shrinkage is discouraging home building – which in turn is holding down demand for imported refrigerators, carpets and the other sorts of manufactured goods households consume.  

As they age, households have had years to accumulate possessions, and they often do not desire more. They are more inclined to spend on services and experiences than on the sorts of manufactured goods that are shipped across borders. 

The loss of factories 

This idea that factories are losing economic importance does not go down easily. Some countries – notably South Korea, China, and Mexico – are heavily dependent on manufacturing, and the idea that making stuff and exporting it will lose importance is challenging.  

In China, as I learned during a recent visit, while ministers are under orders to emphasize science and innovation, the suggestion that the economy needs to move away from making things sparks a sharp reaction.  

In the United States, the promises to increase manufacturing employment are somewhat at odds with the reality of weak demand for many of the things that factories produce – not least motor vehicles. 

Goods are not going extinct, but these factors imply that goods trade will not grow strongly in many parts of the world. They also point to a shift in trade patterns that is already underway, with Africa and South Asia, where the number of new households is still growing, playing more prominent roles. 

The impact on global trade 

These trends are likely to have major impacts on ocean shipping and on ports in Europe, North America, and East Asia that are under continuing pressure to expand.

Current supply-chain disruptions notwithstanding, container ships carrying thousands of steel boxes, filled mainly with goods churned out by factories in low-wage countries using inputs from other low-wage countries, are gradually mattering less to the world economy.  

Increasingly, globalization is about the exchange of services mainly in the form of digits, rather than “stuff.”