International Monetary Fund paper says domestic macroeconomic policy adjustment is the main lever to reduce widening current account imbalances

The International Monetary Fund published analysis on the renewed widening of global current account imbalances, concluding that durable rebalancing depends primarily on simultaneous domestic macroeconomic policy adjustments rather than on tariffs or industrial policy. The paper frames the current account as the gap between national saving and investment and argues that policy effects depend heavily on how households and firms adjust expectations. Tariffs are found to have generally modest and uncertain effects on the current account, particularly when perceived as permanent or when retaliation is likely, with temporary tariffs a rare case that can raise saving by delaying consumption but only with short-lived impacts. Industrial policies are assessed as heterogeneous: targeted, sector-specific measures tend to have ambiguous and limited effects, while economy-wide strategies linked to export-led models can raise current account balances by boosting national saving through mechanisms such as foreign asset accumulation, capital flow restrictions, or financial repression, typically by compressing domestic demand. Scenario analysis suggests imbalances could widen further if current trajectories persist, including large fiscal deficits and strong demand in the United States, additional support to exporters alongside weak consumption in China, and subdued investment and weak productivity growth in Europe. In that setting, escalating tariffs does little to change external positions but lowers output across regions, while an alternative path based on domestic rebalancing would narrow imbalances and lift global output.