Protectionism via Trade Barriers

Steps:

• Identify current account deficit: Imports exceed exports, needing measures to reduce imports or boost exports.
• Define protectionism: Policies shielding domestic industries from foreign competition, like tariffs.
• Evaluate options: Seek measure that directly restricts imports without relying on market forces or fiscal/monetary tools.
• Select fitting option: Tariffs qualify as protectionist by raising import costs.

Why B is correct:

• Increasing import tariffs is a classic protectionist policy, directly reducing import volume by making foreign goods costlier, improving the current account balance per trade theory.

Why the others are wrong:

• A: Currency appreciation worsens the deficit by making exports pricier and imports cheaper; it's market-based, not protectionist.
• C: Higher income tax curbs overall spending (including imports) via demand reduction but is fiscal policy, not protectionist.
• D: Raising interest rates attracts capital inflows, appreciating the currency and harming exports; it's monetary policy, not protectionist.

Final answer: B