Final answer:
Increased economic uncertainty is often brought about by financial crises and trade wars, which lead to a loss of investor confidence and can result in significant trade deficits and recessions, as seen in historical examples like Mexico's crisis and the Asian Financial Crisis.
Step-by-step explanation:
Increased economic uncertainty is a typical consequence of financial crises and trade wars. When there is a threat of war or increasing tensions in trade between countries, it leads to economic instability. Nations facing large trade deficits may find their situation worsening as foreign investors lose confidence and pull out their investments, hastening a move towards a recession. An example of this can be seen in the substantial economic declines in countries like Mexico in 1995 and various nations affected by the Asian Financial Crisis in the late 1990s.
Trade imbalances in goods and services directly affect the flow of international financial capital. When a country has a significant trade deficit, it means it imports more than it exports, leading to an outflow of domestic currency to foreign markets. Persistent deficits can erode confidence in a nation’s economy and, in turn, result in foreign investors withdrawing their capital, pushing the local economy into a recession. During these times, the overall level of saving in the economy often diminishes due to decreased confidence and increased economic hardship among both individuals and businesses.