The Core Contradiction of the Global Economy: Artificial Overheating of Demand vs. Actual Shortage of Demand
Currently, global economies—including the United States—are universally facing the dilemma of insufficient effective demand. While the market presents the illusion of artificial demand overheating, there is in fact a severe oversupply on the supply side. What the U.S. economy needs most at present is capacity reduction, not policy stimulus that encourages businesses and households to increase leverage and expand production capacity. Trump’s current policy direction not only undermines the service sector—the backbone of the U.S. economy—but also encourages industrial firms to increase leverage and expand capacity, a strategy strikingly similar to policies of the Hoover era.
The core premise of policy choices is to recognize the fundamental pain points of the current global economy: the coexistence of insufficient aggregate demand and excess capacity. The world has entered an era of competition over existing market share, rather than the past era of incremental expansion. If the world were still in a phase of incremental competition, the U.S. would have no reason to worry about Chinese high-tech companies like Huawei squeezing out its market share. Against the backdrop of an era of competition over existing market share, blindly encouraging businesses to expand investment and households to increase leverage for consumption will ultimately only lead to supply far exceeding demand, thereby accumulating systemic risks.
The Hoover era similarly held a firm belief in the superiority of a free market economy over state intervention. Prior to 1933, U.S. companies experienced a wave of aggressive expansion, resulting in severe overcapacity coupled with insufficient demand. This ultimately triggered the Great Depression, leading to the absurd situation where farmers preferred to dump milk into rivers rather than sell it to consumers at low prices—because meeting even a portion of the demand would further squeeze the remaining demand space, causing prices to plummet even more severely.
Global Supply Chain Mismatch and the Limits of Demand Support
The current problem of overcapacity is not unique to the United States; Europe is also attempting to revive its manufacturing sector. This effectively means the world is simultaneously building three independent supply chains: one each for Europe, the Americas, and Asia. At the same time, however, the world is universally facing the challenges of an aging population and insufficient demand. This mismatch between supply expansion and demand contraction represents the greatest structural risk to the global economy today.
There is no inherent right or wrong in policies favoring a “small government, big market” approach; the key lies in the stage of development. During the post-World War II baby boom, when supply was severely insufficient and demand was rapidly expanding, encouraging enterprises to expand aggressively was reasonable; similarly, the global market expansion following the end of the Cold War was well-suited to policies of free expansion; China’s reform and opening-up also coincided with this era of growth. The entry of a billion people into the global market generated massive increases in demand, while the collapse of the Soviet Union opened up new market opportunities. Combined with the demand unleashed by China’s rapid urbanization over the past three decades, these factors collectively drove long-term global economic growth.
However, there is no longer such a vast amount of new market space available. In the past, the basic needs of ordinary people were far from being met; they lacked cell phones, cars, refrigerators, and televisions—and even owning a radio or a bicycle was considered a luxury. Today, most countries have achieved a moderately prosperous society, and basic needs are largely met. There are no longer significant gaps in demand or room for market expansion. Although global poverty remains widespread, aggregate demand is simply insufficient to sustain three independent supply chains operating simultaneously. Trump’s policies will not only fail to revive U.S. manufacturing but will also cripple the service sector on which the economy relies. Should a crisis erupt in the future, the consequences will be even more severe.
The Long-Term Impact of Demographic Shifts on the Economy
When discussing demand, demographic factors cannot be ignored. Whether in developing or developed nations, as populations concentrate on a large scale and urbanization advances rapidly, birth rates inevitably decline. Global data shows that birth rates in North America, Europe, Asia, and Latin America are all steadily falling; even in India, the birth rate is on a rapid downward trajectory through 2025.
The reproductive patterns of insects and mammals are entirely different. Insects reproduce more prolifically the more they congregate—take locusts, for example—but among mammals, the higher the population density, the lower the propensity to reproduce. Large cities are, by nature, a “contraceptive” for humans. The higher the urbanization rate, the lower the birth rate—this is a universal phenomenon, unrelated to a nation’s level of prosperity. Unless a country can attract a large influx of immigrants, it cannot alleviate the labor shortages and declining demand caused by an aging population. However, the United States is currently cracking down on illegal immigration, further exacerbating demographic pressures.
Beyond demographic factors, we must also consider the cyclical nature of manufactured goods: the more competitive an industry becomes, the higher the product quality, and the longer the useful life. A car can last 5 to 10 years, yet an assembly line can produce a large number of cars in just one hour; a television can last 5 to 10 years, and consumers do not need to replace it frequently. In contrast, the service industry is characterized by “production equals consumption”: once a movie is watched, the product disappears, and a new movie must be produced for the next viewing; and in a restaurant, the product is consumed once the meal is finished, requiring it to be prepared anew the next time a customer dines. Consequently, the service sector does not accumulate large inventories and is better equipped to weather economic cycles. When an economic crisis strikes, a restaurant can simply close its doors to cut losses, whereas fixed-asset investments in machinery and equipment at factories are difficult to liquidate quickly, making them far less resilient to economic fluctuations.