United States of America
major macro economic indicators
|2018||2019||2020 (e)||2021 (f)|
|GDP growth (%)||3.0||2.2||-3.5||3.2|
|Inflation (yearly average, %)||2.4||1.8||1.3||1.7|
|Budget balance (% GDP)*||-3.8||-4.6||-14.9||-8.6|
|Current account balance (% GDP)||-2.2||-2.2||-2.6||-2.5|
|Public debt (% GDP)||106.6||108.2||130.5||133.0|
(e): Estimate (f): Forecast *Fiscal year from October 1st to September 30th 2021 Data: 2020/21
- Flexible labour market
- Full employment is one of the Federal Reserve’s objectives
- The dollar’s predominant role in the global economy
- 70% of public debt held by residents
- Highly attractive: leader in research & innovation, huge market
- Favourable corporate taxation
- 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- Outdated infrastructure
- Growing inequalities
Heading towards an incomplete recovery?
Plunged into its first recession in more than a decade following the impact of the COVID-19 pandemic, the economy is expected to rebound in 2021. Constrained in 2020 by restrictions to contain the spread of the coronavirus, household consumption (more than two-thirds of GDP) will be the main driver of the recovery. However, household confidence will remain dependent on the course of the pandemic and will probably have to wait for vaccines to be widely distributed to fully rebound. While the Federal Reserve (Fed) is expected to keep its key interest rate close to zero in 2021, low mortgage rates are expected to encourage residential investment. In the context of the development of teleworking and the relatively low supply of existing housing, residential construction will benefit. Business investment, also dependent on the course of the pandemic, is also expected to rebound. Nevertheless, uncertain demand for commercial and office space, and oil prices that may discourage new drilling, will hamper it. On the other hand, the contribution of foreign trade is expected to be negative, with imports growing faster than exports. Moreover, the country is not expected to regain its short-lived status as a net exporter of crude oil. While making little positive contribution to growth in 2020, particularly thanks to the federal fiscal stimulus, government consumption is expected to be less buoyant in 2021. While inflation is expected to rise in line with the rebound in domestic demand, it is expected to remain subdued in view of the unfinished recovery of the labour market, which at the end of 2020 was still 6% below pre-crisis levels. Business bankruptcies are expected to accelerate in 2021, after support measures and payment deferrals prevented a wave in 2020. The retail, clothing, entertainment, energy, air transport, and hospitality sectors will be particularly vulnerable.
Record public debt after an unprecedented fiscal response
In 2020, the public deficit reached a record level because of the exceptional measures taken to respond to the impact of the COVID-19 pandemic. In 2021, while the deficit is expected to decline, particularly in the light of a gradual recovery in revenues, it will remain high due to pandemic-related expenditure. Aid voted for in 2020, equivalent to 14% of GDP, will continue to affect the deficit in 2021. Spending is expected to increase, even more so since an agreement on a new aid plan, including new guaranteed loans for SMEs, "improved" unemployment benefits, and new cheques sent directly to households, was voted on at the end of 2020. Despite the surge in public debt, one of the highest in the world, the country enjoys unparalleled financing flexibility, thanks to its status as the issuer of the USD, the world's main reserve currency. State and local government finances have also come under pressure. The latter benefited from a municipal liquidity facility with the Fed, which expired on 31 December 2020.
In 2021, the current account deficit is expected to improve slightly. It will continue to be driven mainly by the large balance of goods deficit (4.0% of GDP), which is expected to widen under the impetus of rising imports. However, the surplus in the services account, which has been strongly affected by the crisis, is projected to increase. The positive primary income balance, which also declined in 2020, is expected to rebound thanks to profit repatriations from multinational companies. Remaining relatively stable in 2020, the remittances deficit is expected to change little. Flows into the financial account will finance the deficit. Nevertheless, the net international investment position, which has been in deficit for three decades (more than 60% of GDP in 2020), is expected to continue to widen.
Joe Biden, President of a divided America
Following the elections of 3 November 2020, Democratic candidate Joe Biden, Vice President from 2009 to 2017, was elected the 46th President of the United States at the expense of the outgoing President, the Republican Donald Trump. At the end of a campaign disrupted by the COVID-19 pandemic, the elections were notably characterised by the highest turnout in 120 years (66.9%) and a jump in absentee voting. The transition period before the swearing-in of the president on 20 January 2021 has proved unusually indecisive. Alleging massive fraud, the incumbent president refused to concede defeat and filed multiple legal appeals, the majority of which were dismissed. The tumultuous election period was a testament to the deep divisions in American society. Promising to work to reconcile America, President Biden made managing the health crisis, deploying vaccines, and economic recovery a priority. As a symbol of the fragmentation of the electorate, the Democrats maintained a narrow majority in the House of Representatives (222 seats out of 435), while the Republicans maintained their majority in the Senate (51 seats out of 100). Without a majority in Congress, the implementation of Joe Biden's programme is expected to be difficult. In terms of foreign policy, he is expected to break with his predecessor's "America First" strategy, committing to a multilateral approach and re-engaging with traditional partners (Europe, North America). However, some tensions, such as the taxation of technological giants or the dispute over subsidies to aircraft manufacturers, will remain. Above all, trade tensions with China will not vanish, as the new president has indicated that he does not intend to immediately reverse the tariffs applied by the previous administration.
Last updated: February 2021
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.
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.
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.
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.
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.
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.
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.
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.