A demographic alarm bell is ringing in Japan, where the birthrate fell last year to its lowest point in recorded history. The sharp drop in births from the previous year marks the eighth consecutive year of decline. Former Prime Minister Fumio Kishida labeled this demographic crisis Japan’s greatest challenge. But this is more than just Japan’s story.
The world is aging, fast. As it does, global trade will shift in unexpected ways. Japan offers a preview of what much of the world will soon face, as economies everywhere start to see record-low birthrates. South Korea recently recorded the lowest birthrate globally, while Italy hasn’t seen an increase in births since 2008. And this is no longer just a challenge for wealthy, industrialized countries.
In Latin America and South Asia, the population ages 65 and older is quickly rising. Life expectancy is rising even as fewer people are being born. The result: Nearly 1 in 4 people worldwide will be 65 or older by century’s end. That shift could reshape the world in ways we’re only beginning to understand.
Countries are scrambling to adapt to the financial strain of aging populations.
Germany has raised the retirement age, a move echoed across Europe. Greece has introduced a controversial six-day workweek, while China, reversing its one-child policy, now urges families to have three children. Japan is turning to automation to fill the gaps left by retiring workers, and is bringing in more migrant workers.
Amid these shifts, Africa’s youthful population remains a demographic outlier, with over half of its population younger than 25 years old. As economies age, they may experience a decline in overall production and consumption. With fewer workers available, production is likely to move away from labor-intensive to more capital-intensive industries, making capital productivity crucial for sustaining output and growth.
The “consumption- retirement puzzle” adds uncertainty to consumption patterns. While traditional theories suggest consumption remains steady throughout life, in reality, some retirees may spend less due to insufficient savings, shifting their focus to essentials. In aging economies, consumption is moving toward goods and services that cater to an older population. Industrial equipment, transport, and work-related expenditures are giving way to increased spending on healthcare and other essentials for seniors.
In Japan, for example, demand for strollers and baby diapers has plummeted while demand for adult diapers has surged. Similar patterns are emerging globally. In China, spending on medical care and food is rising, while expenditures on transportation, household durables, and recreation are declining with age.
Simulations done by economists Sagiri Kitao and Tomoaki Yamada for Japan through 2050 suggest consumption will fall across the board as the population continues to age, with nondurable goods declining the slowest. The U.S. and Singapore are following a similar trajectory, reflecting a broader global realignment in consumption driven by demographic changes.
As populations age, changes in consumption and labor supply will reshape the structure of global trade, though the full impact isn’t yet understood and depends on the import content of consumption. Some studies hint that older economies might altogether trade less, focusing instead on more capital-intensive goods, while the aging workforce may change the skills used in producing traded commodities. Impacts on trade composition, however, remain an open question. Industrial and durable goods are among the top import and export categories globally.
We can expect these categories to shrink as work-related expenditures decline. Similarly, as birthrates fall and fewer children are born, the global market for toys, infant products, and sports equipment may contract. Such imports are already declining in countries with a higher average age, such as Japan. However, these trends are suggestive, as reduced imports could potentially be offset by increased domestic production.
Conversely, we can anticipate an increase in the trade of services, particularly in areas like healthcare and eldercare. Medical services, provided remotely or through medical tourism, will likely become a more significant component of global trade. Japan’s digital health industry is already growing fast. Its telemedicine market is expected to reach $404.5 million by 2025 (due to “shortages in medical specialists”), and broader healthcare IT, including wearable tech and online monitoring, is projected to hit $16 billion.
The changing demographics suggest a major transformation in global trade. And as the goods and services exchanged shift, there will be opportunities for countries to change their standing in global trade. For younger, less industrialized African economies, the challenge is to leverage their demographic advantage and pivot toward sectors that can thrive in a world less reliant on industrial goods.
Traditional paths to higher-income status, like export-driven industrialization, may lose their effectiveness in an aging global economy with diminishing demand for such products. Wealthier nations will need to delay retirements, rely on migrant labor, and invest in technology to sustain productivity.
Developing nations with aging populations face challenges without access to new technologies, potentially relying on older workers for longer. Addressing this demographic shift will deeply affect markets, production, and trade. It will also demand unprecedented global coordination to ensure that the world can produce and afford what it needs, with no one—and not a single country—left behind.
Source: Barrons
