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Free Trade vs Protectionism
The balance of accounts is a comprehensive account of economic transactions of the residents of a country with the rest of the world during a year. It shows the international receipts and international payments of a country over a period of a year.
A deficit in the balance of payments means that international receipts are less than international payments. A persistent deficit thus shows that the country is not doing well economically. It is losing gold and foreign exchange, and if left unchecked it may well be heading towards economic bankruptcy. Measures must be taken to correct the deficit and to bring the balance of payment back to equilibrium. One of the methods advocated for correcting an adverse balance of payments is trade protection. The imposition of quotas and protective tariffs, the setting up of exchange control, and the devaluation of the currency are some of the ways of checking imports in order to correct a persistent deficit in the balance of payment.
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