Economic Studies
United States of America

United States of America

Population 327.4 million
GDP per capita 62,869 US$
A3
Country risk assessment
A1
Business Climate
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Synthesis

major macro economic indicators

  2017 2018 2019 (e) 2020 (f)
GDP growth (%) 2.2 2.9 2.3 -5.6
Inflation (yearly average, %) 2.1 2.4 1.8 1.2
Budget balance * (% GDP) -4.3 -6.2 -6.7 -20.4
Current account balance (% GDP) -1.9 -2.2 -2.2 -1.8
Public debt (% GDP) 104.9 106.6 108.2 135.0

(e): Estimate. (f): Forecast. *Fiscal year from October to September.

STRENGTHS

  • Flexible labour market
  • Full employment is one of the Federal Reserve’s objectives
  • Dollar’s predominant role in the global economy
  • 70% of public debt held by residents
  • Highly attractive: leader in research & innovation; huge market
  • Favourable company taxation
  • Increasing energy autonomy

WEAKNESSES

  • Low labour market participation
  • Households not geographically flexible
  • High household debt (129% of gross disposable income)
  • Polarised political landscape
  • Decrease in fertility rate
  • Outdated infrastructure
  • Increasing inequalities

RISK ASSESSMENT

COVID-19 pandemic interrupts the business cycle expansion

As the country most affected by the COVID-19 pandemic, the United States entered recession for the first time in more than 10 years, following measures put in place to contain transmission of the coronavirus. Stay-at-home orders issued by more than 40 states from the end of March and in April caused a sudden stop in activity that affected most components of GDP. Despite the reopening process that began in the spring, the deterioration of the health situation in many parts of the country over the summer is expected to disrupt the recovery.

 

In 2020, the disruption of consumption patterns and, more importantly, the pressure on household incomes caused by the unprecedented deterioration in the labour market, will weigh on private consumption (almost 70% of US GDP). Before the crisis, household confidence has been buoyed by the lowest US unemployment rate since 1969 (3.5% in February 2020) - but this confidence has been crushed by the rate's explosion to record levels (14.7% in April). Despite the sending of checks to households and the temporary increase in unemployment benefits cushioning the impact on incomes, the precarious health of the labour market will hamper the recovery in consumption in 2020 and 2021.

 

Public spending is expected to make a rare positive contribution to GDP, thanks to the federal stimulus packages. The disruption of supply chains and still high trade tensions will lead to a collapse of trade. However, their contribution to growth is expected to be relatively neutral, with falling imports offsetting the decline in exports. Already declining in 2019 due to the mitigating effects of President Trump's tax reform (reduction of corporate taxes from 35% to 21%) and pressure on corporate profits as a result of trade tensions, private investment has been impacted by the COVID-19 crisis. It will contribute negatively to growth despite the reduction of its key interest rate to close to 0% and the implementation of several credit facilities by the Federal Reserve. Despite these monetary easing measures, inflation should remain under control due to weak domestic demand.

 

While no sector is likely to be spared by the crisis, the retail, energy, textile-clothing and transport sectors will be among the driving forces behind the increase in business bankruptcies.

 

Budget deficit and public debt at record levels 

In 2020, the budget deficit is expected to reach a record level as a result of the exceptional measures adopted to deal with the COVID-19 crisis. At the end of July, the stimulus plans already voted, including the CARES Act, were estimated at around 14% of US GDP. Moreover, at the time of writing, Congress was still debating a new series of fiscal stimulus measures that could further widen this deficit. As a result, government debt, already on an upward trajectory, is expected to jump in 2020 to finance spending conceded to support households and businesses. While the country already has one of the highest levels of public debt in the world, the United States enjoys unparalleled financing flexibility, taking advantage of its status as an issuer of the US dollar, the world's main reserve currency.

 

In 2020, the current account is expected to remain in deficit, still burdened by a large trade deficit. The latter could, however, narrow as imports shrink faster than exports. The surplus on the services balance could narrow slightly, mainly due to lower tourism receipts. In the context of the crisis, profit repatriations by US companies abroad are likely to increase, also contributing to the reduction of the current account deficit. The latter is expected to continue to be financed mainly by FDI and portfolio investment. Nevertheless, the net international investment position, which has been in deficit for three decades (51.6% of GDP at the end of 2019), is expected to continue to widen.

 

2020 elections under high tension

President Donald Trump will run for a second term in the November 3, 2020, general election and will represent the Republicans against Democrat Joe Biden, vice president from 2009 to 2017, who was nominated in primaries disrupted by the COVID-19 pandemic. While the outcome of the election remains undecided, President Trump lags significantly behind his Democratic opponent in national polls. The gap has widened since March, at the same time as the perception of the incumben'ts handling of the crisis has deteriorated. Nevertheless, the difference in perception between Republican and Democratic voters is indicative of the polarisation of the electorate. This polarisation is also found on the political scene and was notably revealed by the impeachment proceedings against President Trump, who was suspected of having put pressure on Ukraine to investigate Joe Biden and his son. Initiated by a Democratic-dominated House of Representatives (235 seats out of 435), this procedure ended with the acquittal of the president by the Senate (held by Republicans, 53 seats out of 100). In this context, President Trump's repeated suggestion that absentee voting, favoured in the context of COVID-19, could give rise to fraud in the 3 November ballot heralds a tumultuous campaign. In addition to the COVID-19 crisis, the subject of racial inequalities and police violence against blacks should also animate the campaign. Following the death of George Floyd, an unarmed black man, during a police stop in Minneapolis at the end of May, demonstrations have multiplied and have invited this issue into the presidential debate.

 

US trade and foreign policy remains volatile and unpredictable. Despite the signing of a partial trade agreement in January 2020, trade tensions with China persist, with most customs duties being maintained (19% on average at the beginning of 2020 against 3% at the beginning of 2018). Tensions with China remain high not only on the trade front: the multiplication of sanctions linked to the fate of Hong Kong and the Uighurs, the banning of Huawei's infrastructure and the closure of the Chinese Consulate in Houston bear witness to this. Trade threats against Europe are also becoming more pressing, as retaliatory measures are being taken against European countries that want to introduce a tax on technological giants (especially Americans).

 

Last update: August 2020

Payment

Exporters should pay close attention to sales contract clauses on the respective obligations of the parties and determine payment terms best suited to the context, particularly where credit payment obligations are involved. In this regard, cheques and bills of exchange are very basic payment devices that do not allow creditors to bring actions for recovery in respect of “exchange law” (droit cambiaire) as is possible in other signatory countries of the 1930 and 1931 Geneva Conventions on uniform legal treatment of bills of exchange and cheques.

Cheques are widely used but, as they are not required to be covered at their issue, offer relatively limited guarantees. Account holders may stop payment on a cheque by submitting a written request to the bank within 14 days of the cheque’s issue. Moreover, in the event of default, payees must still provide proof of claim. Certified checks offer greater security to suppliers, as the bank certifying the cheque thereby confirms the presence of sufficient funds in the account and makes a commitment to pay it. Although more difficult to obtain and therefore less commonplace, cashier’s checks – cheques drawn directly on a bank’s own account – provide complete security as they constitute a direct undertaking to pay from the bank.

Bills of exchange and promissory notes are less commonly used and offer no specific proof of debt. The open account system is only justified after a continuing business relationship has been established.

Transfers are used frequently – especially via the SWIFT electronic network, to which most American banks are connected, and which provides speedy and low-cost processing of international payments. SWIFT transfers are particularly suitable where real trust exists between the contracting parties, since the seller is dependent on the buyer acting in good faith and effectively initiating the transfer order.

For large amounts, major American companies also use two other highly automated interbank transfer systems – the Clearing House Interbank Payments System (CHIPS), operated by private financial institutions, and the Fedwire Funds Service System, operated by the Federal Reserve.

Debt collection

Amicable phase

Since the American legal system is complex and costly (especially regarding lawyers’ fees), it is advisable to negotiate and settle out of court with customers wherever possible, or otherwise hire a collection agency.

 

Legal proceedings

The judicial system comprises two basic types of court: the federal District Courts with at least one such court in each state and the Circuit or County Courts under the jurisdiction of each state.

 

Fast-track proceedings

If the debt is certain and undisputed, US law provides for a “summary judgment” procedure, where a motion for summary judgment is based upon a claim by one party that all necessary factual issues are settled or that no trial is necessary. This is appropriate when the court determines there are no factual issues remaining to be tried, and therefore a cause of action or all causes of action in the complaint can be decided without a trial. If the judge decides that there are facts in dispute, the court will deny the motion for summary judgment and order a trial.

 

Ordinary proceedings

The vast majority of proceedings are heard by state courts, which apply state and federal law to disputes falling within their jurisdictions (i.e. legal actions concerning persons domiciled or resident in the state).

Federal courts, on the other hand, rule on disputes involving state governments, cases involving interpretations of the constitution or federal treaties, and claims above USD 75,000 between citizens of different American states or between an American citizen and a foreign national or foreign state body or, in some cases, between plaintiffs and defendants from foreign countries.

A key feature of the American judicial system is the pre-trial “discovery” phase, whereby each party may demand evidence and testimonies relating to the dispute from the adversary before the court hears the case. During the trial itself, judges give plaintiffs and their lawyers a considerable leeway to produce pertinent documents at any time and conduct the trial in general. This is an adversarial procedure, where the judge has more the role of an arbitrator, ensuring compliance with the procedural rules, although more and more practices enhances the role of the judge in the running of the case. The discovery phase can last several months, even years. It can entail high costs due to each adversary’s insistence on constantly providing pertinent evidence (argued by each party), and involve various means – such as investigations, requests for supporting documents, witness testimony, and detective reports – which are then submitted for court approval during the final phase of the proceedings.

In civil cases, the jury determines whether the demand is justified and also determines the penalty to impose on the offender. For especially complex, lengthy, or expensive litigations, such as insolvency cases, courts have been known to allow creditors to hold as liable the professionals (e.g. auditors) who have counselled the defaulting party, where such advisors have demonstrably acted improperly.

Enforcement of a Legal Decision

Domestic judgments in the United States give the creditors additional rights, such as the seizure and selling of the debtor’s assets or the garnishment of their bank account. As a federal state, decisions rendered in one of the country’s states may be executed in another state’s court, provided that the enforcing court considers that it is competent to enforce any judgement.

For foreign awards, each state has its own legislation. Nevertheless, they must be first recognised as domestic judgments. If a reciprocal recognition treaty exists, the requirement is fulfilled. However, in the absence of one, exequatur proceedings aim at ensuring enforcement in domestic court, after verifying the judgment meets certain criteria provided by the state law.

Insolvency Proceedings

Out-of court proceedings

Different state laws can propose out-of court proceedings in order to avoid any formal judicial proceedings, such as the Assignment for the benefit of creditors in the state of California, where a company turns over all of its assets to an independent third party, who liquidates and distributes them to all creditors in an equitable fashion.

 

Restructuring proceedings

Chapter 11 of the American Bankruptcy Code provides a distressed entity with the opportunity to preserve its business as a going concern while implementing an operation of financial restructuring. The debtor can seek to adjust its debt by reduction the amount owed or extending repayment terms. The debtor entity and its management continue to operate the business as the debtor-in-possession. The Bankruptcy Court supervises the proceedings.

 

Liquidation

According to Chapter 7 of the American Bankruptcy Code, the purpose of these proceedings is to implement an orderly liquidation of the distressed entity. The court-supervised process involves a trustee selling assets and distributing the proceeds to creditors in accordance with the statutory priorities provided in the Bankruptcy Code as well as pursuing available causes of action. The US Trustee appoints an independent interim trustee to administer the case. The interim trustee holds a meeting of creditors after the petition is filed. He is responsible for liquidating the estate’s assets and distributing the proceeds to the creditors. The court supervises the proceedings. State law can also provide different mechanism for liquidation of a debtor’s assets such as receivership.

Insolvency trend United States of America
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