Japan Center for Economic Research

2060 Digital & Global Economy

January, 2020

JCER, Japan Center for Economic Research, the Japan's leading think tank, predicts theglobal economy in 2060, focusing on digital technologies that continue to evolve and have a
disruptive impact on the economy and society. We illustrate the results in series.

Lead Economist,
Principal Economist,

Sumio Saruyama*
Kengo Tahara

2. Nightmares turn to reality if U.S.-China conflict deepens
We will have a different outlook depending on the future trade environment. If the current
severe U.S.-China conflict continues, steady economic growth cannot be expected. TheU.S. President Donald Trump's nationalist principle is not transient. In the United States,
there has been an economic climate where its citizens were inclined to favor
protectionism over the past years. And the same could spread to other developed countries.
Can we maintain free trade system as the digitalization of the economy progresses? Let'sconsider what happens to the global economy when the trade war intensifies.
Emergence of President Trump prompted by shrink of manufacturing
Employment instability already began before the presidency of Trump. Manufacturing
employment had fallen by more than 30% in the 10 years starting 2000 from when
China’s involvement in international trade progressed substantially. Huge amount ofcheaply-priced goods has been imported from China. At the same time, automation of themanufacturing process has advanced. When people move from manufacturing industry
to service industry, wages often go down. As Nobel economist Angus Deaton revealed,more Caucasians have lost their lives due to drug and alcohol addiction than before. The
United States seems to have failed to share its wealth produced by the growth of theworld's leading IT firms. President Trump has politically harnessed the frustration of
those who have lost stable jobs.
The wave of automation in services and professional work
Employment will become more volatile as digitalization progresses. Richard Baldwin,Professor of International Economics at the Graduate Institute, Geneva, predicts in his
book "Globotics Upheaval" that the ups and downs of each occupation will be severe indeveloped countries as globalization and robotization progress simultaneously.
In the future, service jobs that have been difficult to automate will also be subject to*

Email: saruyama-at-jcer.or.jp

42060 Digital & Global Economy
Japan Center for Economic Researchautomation. With the prevalence of self-driving, taxi and truck drivers will disappear, andwith the rise of automated translation, low-wage workers in emerging countries willreplace office workers in developed countries. In the work of professionals, such as
medical doctors and lawyers, routine tasks will be automated with artificial intelligence.
For this reason, more people will call for help to politics to secure their jobs. Attitudes of"self-interest comes first" are most likely not subdued.
Deep-rooted U.S. current account deficit
The persistent current account deficit in the United States will also create an environment
for politicians to pursue protectionism.
The current account is equal to domestic savings minus investment. The United States
has a huge budget deficit. Even after Trump administration, bipartisan agreements to raise
spending caps on expenditures may be repeated. Unless the budget deficit is corrected,
the U.S. current account deficit will not disappear.
Current Account Balance for Each Region
10percent of GDP

China

8Forecast

6Japan42Euro area

0-2
USA-4-6
1995

2010

2025

2040

2060
2055

year

Source:Iwata, Maeda, and Takano（2019）Global Imbalances and Demographic
Changes, JCER Discussion Paper, No. 149.

The United States will suffer negative growth if conflicts intensify
The U.S.-China rivalry could get worse. China's superiority in economic power andtechnology will increase. The United States is shutting out Huawei, a major
telecommunications equipment provider, stating that it could pose a threat to U.S. security.
Even if President Trump retires, it is possible that the U.S.'s strict attitude toward Chinawill not disappear.
What happens if the trade war intensifies? Let us suppose that the United States will

5January, 2020

2060 Digital & Global Economy
Japan Center for Economic Researchcontinue the tariff war and escalate its policy by adopting restrictions of cross-border data
flow and immigration. China and other major powers will also respond by increasing
trade restrictions. As in pre-World War II, the global economy will be blocked withprotectionism.
If such conflict persists, the United States will fall into negative growth. Baseline
forecasts indicate that the United States and China will remain competitive, but in thisProtectionist Scenario, out simulation indicates that China will continue to be far aheadof the United States in economic size. Other major countries, such as Japan, will also
experience negative growth. There will be nightmares to come. It would be Japan’s
advantage to promote Free Trade Agreements and fight against protectionism.
GDP prospects for Japan, the U.S. and China: Protectionist Scenario
GDP in Tr. US$, 2014 prices35
China

30

Forecast

25USA

20
15
10Japan

502000

2010

2020

2030

2040

2050

2060 Year

Source: Japan Center for Economic Research, Long-term Forecast, December 2019

6January, 2020