Question

Why does a recession cause a trade deficit to increase?

Short answer

During a recession, incomes fall, and consumers buy fewer goods, including imports which leads to a increase in trade deficit.

Step-by-step solution

Step 1. Trade deficit

When a country's imports surpass its exports during a specific time period, it has a trade deficit.

Step 2. Reason

During a recession, incomes fall, and consumers buy less goods, including imports. This causes a trade deficit to increase.