Opening Remarks by the First Deputy Managing Director at the 26th Jacques Polak Annual Research Conference HTML File

Opening Remarks by the First Deputy Managing Director at the 26th Jacques Polak Annual Research Conference

November 6, 2025

Good morning, and welcome to the IMF's 26^th Annual Research Conference. This is my first Annual Research Conference as First Deputy Managing Director, and I'm delighted to be here.

This year's theme, "The Evolving Landscape of Global Trade and Financial Integration", could not be more timely.

Global economic relations are being transformed by the growing intersection between geopolitics and trade, new technologies, and a rapidly evolving rethinking of long-held assumptions about international economic integration. In this context, the global economy is being redesigned-not just for short-term efficiency, but for long-term resilience.

Financial integration is also evolving. Core funding markets are increasingly dominated by non-bank financial intermediation, which may increase the potential for rapid transmission of shocks. Needed but painful domestic adjustments could come at the sharp end of repricings rather than deliberate planning.

These changes require countries and policymakers to adapt. They bring opportunities for innovation and growth, but also vulnerabilities and spillovers that demand careful policy responses.

The spirit of the Annual Research Conference is to push the boundaries of economic thought. To that end, I'd like to kick off the discussions by posing a series of questions, grouped around three major themes that are intentionally designed to push the intellectual frontier.

First, trade. Trade has been a cornerstone of economic development, including the unprecedented rise in global living standards following World War II and the establishment of the Bretton Woods Institutions. Yet, there is a strong perception that not everyone has benefited equally in recent times-either within or between countries.

The classic Ricardian model suggests that when economies specialize in activities for which they have a comparative advantage, everyone gains. But such models rely on systems that exhibit economic flexibility and lack distortions that could preclude the necessary adjustments. While there is no such thing as a pure market economy or a purely centrally planned economy, different countries have significantly different degrees of state intervention and control.

When state interventions inhibit economic flexibility and persistently distort the pattern of comparative advantages, do the gains from trade still hold? Can we still rely on trade to be a driver of not only short-term efficiency, but also sustainable and balanced growth amongst countries with fundamentally different models for state influence on the economy?

And what about policies that directly regulate trade? Tariffs, understandably, have received the bulk of attention over the last year. But tariffs function by changing relative prices, which will tend to be less distortionary than non-tariff barriers, including quantity interventions like export controls.

Historically, export controls have tended to cover dual use items and frontier technologies. In a world where artificial intelligence is often cited as a potential savior for badly needed productivity growth, how should economists think about the trade offs involved in export controls on advanced technologies like leading edge semiconductors?

Additionally, we are seeing increasing use of export controls not only on advanced technologies, but on legacy ones around which existing production processes are built. For example, rare earth magnets represent a fraction of the total input cost of many manufactured products, but without them, the products simply cannot be made. A cut off would risk production shutdowns that could cascade across supply chains and would ripple through the economy and the financial system. Will the increasing use of export controls do more to reshape global trade and production than changes in tariff levels?

Second, global imbalances and capital flows.

Left unchecked, the widening of global imbalances-excess current account surpluses and deficits-can amplify vulnerabilities. The increase in excess imbalances in 2024 was the largest in a decade. External imbalances begin at home with domestic macroeconomic imbalances in savings and investment. Domestic action is needed to reduce external imbalances, for example through progress towards investment expansion in Germany and fiscal consolidations in the United Kingdom and the United States.

But while improved domestic policies certainly will help, what if the causation runs both ways? What if a country's domestic imbalances are influenced by the external imbalances that are themselves a product of other countries' domestic imbalances? This was arguably the case during the global savings glut twenty years ago, in which current account deficits widened while fiscal deficits did not.

And what should countries do if domestic measures are insufficient to rebalance, and if other countries are unwilling to address the domestic imbalances that cause the spillovers?

As we think about current account flows, we should also consider the role of capital flows. For instance, are capital flows to deficit countries slowing the adjustments needed to address excessive imbalances? Moreover, protracted current account imbalances can lead to stock imbalances, whereby countries' net foreign asset positions deviate significantly from sustainable or desirable levels. How concerned should we be about systemic risks emanating from stock imbalances, even if flow imbalances are addressed?

That brings me to a final theme: geopolitical fragmentation and economic integration.

As supply chains reorder and new trading blocs emerge, regionalization seems to be on the rise. More stable and harmonious regional relations should be welcomed and can be intertwined with closer economic integration.

But to durably raise living standards, conditions for healthy economic integration need to be present. The degree of security, economic, and political compatibility varies significantly depending on the neighborhood. For instance, not all neighbors have the same degree of state involvement in the economy. Could deeper integration paradoxically create distortions, disruptions and vulnerabilities that negatively impact geopolitical stability? And to what extent is within country integration-at least for larger economies that often exhibit significant internal frictions-a potentially more attractive pathway?

Moreover, in an era of geopolitical tensions, should we differentiate between types of specialization? Beyond the broad categories of goods and services, are there more types of economic activity that a successful modern economy cannot outsource? In other words, even in the absence of excessive aggregate imbalances, could sectoral imbalances be problematic? They could potentially lead to resource misallocation-both within and across countries-and exacerbate security concerns.

These questions are just the tip of the iceberg. Over the next two days, we will explore these and other issues from multiple angles, with a program that features cutting edge research on trade dynamics, global value chains, capital flows, and the policy tradeoffs that they present.

The Mundell-Fleming Lecture will offer a modern take on the classical question of financial repression, while the Policy Panel will bring practitioners and academics together to weigh trade-offs and political realities.

As you listen to the presentations, I encourage you to keep these questions in mind and to challenge the speakers and challenge each other. The best insights emerge from dialogue across disciplines and perspectives. I'm looking forward to seeing how the research featured today can be incorporated into our analysis and policy advice.

With that, I am delighted to open the 2025 Annual Research Conference and invite Gian Maria Milesi-Ferretti to begin our proceedings with the first session, "Tariffs and Global Imbalances."