Tentative Summary of the International Conference by Secretariat
The ESRI has held the International Conference annually that brings together economists mainly
from Japan and the United States. This year's conference was held on August 1, discussing thetheme of "Major Future Economic Challenges." The following is a summary of the discussions.
Keynote speech

Speaker: Kazumasa IWATA (Japan Center for Economic Research (JCER))
IWATA mainly discussed three major issues: (1) geo-economic fragmentation, (2) climate change
and new industrial policy, and (3) demographic changes. (1) By discussing economic predictions
made by the JCER in past years, he listed some key factors for long-term economic forecasts,
including the US immigration and ﬁscal policy, China’s policy regime changes and population
development, as well as technological convergence and the quality of institutions. (2) He notedthat there was severe competition among governments in climate policies, and stressed theneed for international rule making. Regarding Japan’s policy moves, he raised two issues: slow
implementation and insuﬃciently low carbon price. (3) He noted that, due to the massive
increase of non-regular/part time workers, output per worker has slowed down and real wages
have been on a declining trend until today, suggesting that Japanʼs natural interest rate has
been negative. This implies both the excess consumption eroding the sustainability of inclusive
wealth and the existence of Krugmanʼs deﬂationary equilibrium rather than the Friedmanʼs.

Session 1: Role of economic measures such as carbon tax to tackle climate change
Chair: Alan AUERBACH (UC Berkeley)
Presenter: Hitoshi MATSUSHIMA (University of Tokyo)
Discussant: Catherine WOLFRAM (MIT Sloan)
MATSUSHIMA noted that the COP had been slow to form international agreements on CO2emission reductions, whereas the climate club (CC) by voluntary participants caused theinternational community to worry about coercion, sanctions, and pressure. He then proposedan alternative, resilient approach to facilitate agreement formation without the aforementioned
concerns about CC, which he called the New Climate Club (NCC). NCC consists of voluntary
participant regions, as CC does, but incorporates a mechanism for setting regional carbon prices
which leads to high carbon prices among members, is resilient to insuﬃcient participation orengagement, and respects all regions’ sovereignty. He remarked that the NCC must becomplemented by sustainability education, a carbon border adjustment mechanism (CBAM),and other policies.
WOLFRAM emphasized the topic’s importance, referring to some criticisms against the current
international framework of the UNFCCC. She argued that the CBAM was a potentially usefulapproach by overcoming the prisoner’s dilemma inherent in climate mitigation policy choices,and then suggested that combining it with the NCC could achieve the coordination outcome.
She concluded her discussion by giving practical questions/comments on the NCC, such as theincentives to set key parameters, the irrelevance of countries’ carbon price levels below target,
and where the NCC would gather.
Session 2: Geo-economic fragmentation and economic nationalism
Chair: Anil KASHYAP (University of Chicago)
Presenter: Adam POSEN (Peterson Institute forInternational Economics (PIIE))
Discussant: Keiko ITO (Chiba University)
POSEN mainly discussed, among other global economic themes, the US policy on trade, FDI,and migration. He noted that the US trade openness had not kept up with the increasing
openness of the rest of the world, and that the immigrant population in the US had been
growing more slowly than in most other advanced economies before the COVID period. As forthe future of the US openness, he noted that the diﬀerence between the Trump and Harrisadministration on trade, FDI, and migration would be only in magnitude, and that Harris would
be more aggressive on export controls and sanctions. Finally, he predicted that the US and EU
brand would likely enter a secular decline in the other parts of the world, and that Japan would
have a chance for growth in the global market.
ITO suggested, based on recent research ﬁndings, that tighter export controls and technology
regulations by the US might not yield desired results, due to the limited scope of the policies’
impacts, ﬁrms’ responses by changing business practices or circumventing regulations, and/orinnovation in China. Noting this, she suggested that the US government should be clear andtransparent in its policy/regulatory content and should be aware of the negative consequencesof disregarding the rule-based international trade order. Meanwhile, she suggested that Japanas a middle power should support a rule-based international trade order, and that developing
human resources with understanding of international relations would be important.
Session 3: International mobility of people: Economic opportunities and political challenges
Chair: Alan AUERBACH (UC Berkeley)
Presenter: Giovanni PERI (UC Davis)
Discussant: Yu KOREKAWA (National Institute of Populationand Social Security Research of Japan)
PERI ﬁrst documented increasing trends in migration (especially from middle-income countries
to high-income economies) and non-random sorting out of the origin countries and into thehost countries. He next argued, via a macroeconomic framework and micro evidence, thatimmigrants were integrated in the host economy and contributed to the growth in innovation,
productivity, and entrepreneurship, and later argued that immigrants would be especially
beneﬁcial in an aging society. Then, he pointed out that low-skilled immigrants increased
populism and nationalism in the host countries, but that high-skilled immigrants reduced them,and that the degree of such responses depended on local conditions. Given these ﬁndings, hesuggested that policies should plan for balanced and sustained immigration, by admitting thehigh skilled via college education and the low-skilled via jobs related to the “silver” economy.

KOREKAWA oﬀered a complementary discussion by explaining the immigration trend in Japan.
He noted that Japan was the largest destination country in the international labor market inAsia. He predicted that Japan would integrate manual workers via the new Speciﬁed Skilled
Worker Program, and it would integrate non-manual workers via study in Japan. He also notedthat such international labor migration from Asia would greatly impact the demographics (slowpopulation decline) and the labor market of Japan (as well as the pension system).
Panel discussion: How to deal with the future economic challenges in the time of geoeconomic fragmentation?
Chair: Kazumasa IWATA (JCER)
Presenter: Hiroshi NOMURA (ESRI)
Panelists: Caroline FREUND (UC San Diego)
Adam POSEN (PIIE)
Barry EICHENGREEN (UC Berkeley)
NOMURA introduced the simulation results on the future outlook of the Japanese economy up
to 2100, using a system dynamic AI model tailored to the Japanese setting. Some predictions ofthe model were as follows: by 2100, (1) the total population of Japan was estimated to bebetween 40-130 million compared to the current 120 million, (2) Japan’s GDP was estimated tobe between $3.0-20.0 trillion compared to the current $4.4 trillion, and (3) the well-being inJapan was estimated to be between 0.2-4.0 compared to the current 1.0. The key determinants
identiﬁed were income distribution to young people, accepting foreigners, domestic productionof renewable energy, and expansion of trade with the Global South.
FREUND talked about (de)globalization and decoupling, resulting risks to the global economy,
and what we could do to reduce the risks. She pointed out that although people had started
talking about deglobalization since COVID, it had not occurred, as trade had actually surged
during that period. However, she noted that decoupling had happened, driven by the US policy
such as tariﬀs, though dependence on China in the supply chain was not shrinking. She wascautious about using industrial policies to achieve self-suﬃciency in industries (e.g.,semiconductors) without clear competitive advantages, and instead suggested that the US
should work more closely with its allies to enjoy the beneﬁts of globalization without risks ofexcessive dependence on one country.
POSEN ﬁrst mentioned regime switching as a factor reinforcing certain behavior. He then argued
that, with a potential regime switch coming, the decoupling parties could deepen therelationship with the third nations (nations other than the US and China) to compensate for theloss from decoupling. He argued that Japan, as the foremost of the third nations, could engage
in "principled plurilateralism," whereby voluntary members could set standard behavior and any
nation willing to live up to it could be admitted. He concluded by emphasizing Japan’s potential
leadership role in stopping the undesirable regime switching.

EICHENGREEN began by posing two questions about the simulation exercise presented by
NOMURA: (1) What was the role of AI in the model? (2) Was 75 years the right time horizon forpolicy analysis? He also commented on industrial policies, arguing that they were likely less
eﬀective in frontier economies with technological uncertainty, compared to catch-up
economies. He then moved on to discussing the eﬀect of decoupling on dollar dominance. He
argued that, despite some evidence for decoupling for the US (but not yet clear for China), there
was no evidence for ﬁnancial decoupling overall. He found some evidence of ﬁnancial
decoupling between China and the rest of the world (decreasing FDI to China), and someevidence for diversiﬁcation from the dollar (in terms of foreign exchange reserves). However,the diversiﬁcation from the dollar was not captured by the Euro, and very little was captured by
the renminbi. He concluded that the world would be moving to a multipolar internationalmonetary system, but very slowly, and that the present conﬁguration would likely persist.
IWATA then asked each panelist a question. To FREUND, he asked her to comment on two
approaches to restoring the liberal international order, namely WTO reform and an expansion ofregional integration (CPTPP). She answered that the WTO would not be an option and that
regional integration would be a way to move forward, but that the US would then need to beperceived as a reliable partner. The question to POSEN was about the eﬀectiveness of new
industrial policy (e.g., for AI) on the US and Japan. He answered that implementing industrial
policies in the current way could make other problems serious, because the amount of money
spent on other important things would be reduced, because of corruption, and because of thefailure to think about the rest of the world (in terms of competition, etc.). The question toEICHENGREEN was about the eﬀect of Trump’s re-election on the dollar dominance. He
answered that the current debt outstanding of the US would not be an immediate threat, butthat Trump’s ideas such as a capital inﬂow tax would be a threat to the dollar’s standing.
Closing speech
Yutaka MURAYAMA (ESRI) shared his thoughts: (1) the importance of addressing the issues
from systematic perspectives, whereby we could ﬁnd a link between seemingly diﬀerent (anduncertain/complex/ambiguous) issues, (2) the potential of interdisciplinary research,
exempliﬁed by the discussion of the environmental policy using game theory, and (3) theimportance of international discussions.