Listen to this article
This is an experimental feature. Give us your feedback. Thank you for your feedback.
What do you think?
In 1950, the world’s population was 2.5bn. More than 20 per cent of those people lived in Europe, and along with the 7 per cent living in North America, they dominated the global trading system. The rich western nations brought raw materials in, sent manufactures out and traded with each other.
Roll on to 2017 and we live in a world transformed. The planet’s population has more than tripled to 7.5bn. Only 10 per cent live in Europe. North America holds 5 per cent. Three out of every five people now live in Asia. This demographic shift, linked with but separate from the rise of Asian economies, has changed the pattern of global trade.
Demographic shifts over the rest of the 21st century will be just as dramatic. What is more, they will involve not just a change in the distribution of people, but big changes in their relative age. That will further shape how goods flow around the world.
“Ageing, migration, educational convergence and women’s growing participation in the labour force — all linked to the underlying demographic transition — help to shape countries’ comparative advantage,” said the World Trade Organization in a 2013 report.
“Moreover, as the size of the working-age population increases in some countries and decreases in others — and as a global middle class emerges — the size and the composition of import demand is also changing, with further effects on trade flows. For instance, trade in services, such as healthcare and education, is likely to increase.”
By 2100, the UN projects a population of more than 11bn. Just 6 per cent will be in Europe and 4 per cent in North America. Asia’s share will fall from 60 per cent to 43 per cent. By contrast, Africa’s share is forecast to go from 17 per cent today to 40 per cent.
Part of the story of trade over the rest of century, therefore, is likely to be the rise of trade flows to Africa, and between Africa and Asia in particular. Moreover, those workers in Africa will be relatively young, while populations in Asia — certainly in China and Japan, although less so in India — will become older.
The relationship between population ageing and trade is ambiguous. On the one hand, youthful countries with a large supply of workers should have a comparative advantage in manufacturing. At lower skill levels, this tends to be true, and industries like textiles migrate around the world in search of the cheapest wages.
Africa’s predicted population in 2100, more than three times today’s level
A reasonable guess, therefore, is that Africa will at some point become a significant exporter of basic manufactured goods to the rest of the world. However, young countries tend to have high consumption, which sucks in imports, while workers in ageing countries save to support their retirement. As a result, nations such as Japan have remained net exporters of goods despite their rapidly ageing populations.
The impact of demographics on future trade patterns may also differ from the past because of factors such as automation and migration. If, for example, robotics advances to a stage where it can compete with even very low wages then the comparative advantage of young, low-wage workers may become less relevant.
So far, there is little sign of such a change, with significant textiles industry growth in countries such as Bangladesh.
Any forecast of how population distribution will shape future trade also depends on migration. For example, the UN population forecasts assume Africa’s population will more than treble to 4.5bn by 2100, while the population of Europe declines by 12 per cent from today to 653m. If instead there is large-scale immigration from Africa to Europe then the trade outcomes will be very different.
Demography has shaped trading patterns since antiquity. The early demographic transition in Europe was bound up with its position at the centre of the global trading system, as a source of both manufactured goods and migrants. The rise of Asia’s population prefigured its role at the heart of the global economy.
With dramatic change ahead in the structure of the world’s population, it is set to remain one of the deep factors shaping global trade flows.
The author is the FT’s Tokyo bureau chief and an economics columnist