"Trade Deficit must exist, if a country is facing situation of Current Account Deficit (CAD)." Defend or refute the above mentioned statement with valid arguments.

Question

Accepted Answer

I **refute** the statement. Trade Deficit need not exist if a country is facing Current Account Deficit (CAD).

**Reasoning:** Current Account includes not only visible trade (Balance of Trade) but also invisible trade (services like shipping, banking, insurance), unilateral transfers (gifts, remittances), and investment income. A country can have:
- Trade Deficit (imports of goods > exports of goods)
- Trade Surplus (exports of goods > imports of goods)

But still have CAD due to large invisible imports or unilateral transfers abroad. Conversely, a country with Trade Deficit can have Current Account Surplus if invisible exports exceed invisible imports by a large margin.