Question

If a government wants to correct a current account deficit, why can’t it simply enforce restrictions on imports?

Answer 1

Import restriction is not an easy step to curb the deficit due to multiple reasons. The very first reason could be is that the government earns by imposing high tarriff on these imports and acts as an important source of income.

But there are various other reason which suggests curbing imports to cover for deficit is not a good idea. There are countries which produces products in large numbers but few of the components they use are imported. So, we see if we try to restrict the imports, even the local business could be affected very badly. To substantiate this, a good example will be India. India is such a big hub for pharma industry. But the API used in these drugs are mostly imported. Also,the imports are also required to acquire some material which is not found in the host country but is essential. Example could be oil, it is produced by few countries but is very essential in everyday's life. So, yes import restriction is certainly not a good idea. Rather recognising the strength of the country and become expert in some skill so that they can export the services would be a good idea. Increasing the Export is a better option to reduce the deficit and this is possible only when the country figures out it's strength and work upon it so the other countries feel the demand of it.