United States of America

A resilient economy threatens to run hot again

The economy experienced a soft landing at end-2024 and shows some early signs of re-acceleration. The labour market is sending mixed signals: unemployment and job creation data suggest the loosening trend could be ending, but new employment is concentrated in a handful of industries (education, healthcare, government, hospitality). Inflation is close to target but appears to be bottoming out, while corporate bankruptcies have risen to their pre-Covid levels. The Fed is expected to deliver one or two more cuts in 2025, but stands ready to pause as inflation risks are tilted to the upside. Unemployment will continue in the 4-4.5% range, somewhat under full employment. However, thanks to the technological investments and the labour reallocation experienced in the last few years, productivity growth has been remarkable and will continue to support solid (albeit moderating) wage growth. Persistently strong consumption (70% of GDP) suggests that demand is being increasingly driven by better-off households and that more slack would be needed to provoke a proper downturn. Investment growth will be modest, given the transmission lags of the Fed’s monetary easing. The risk of reflation and expectations of growing fiscal deficits are putting upward pressure on treasury yields, and consequently on broader financial conditions. In residential investment, this is discouraging both borrowers and sellers as homeowners are reluctant to move and forgo the better conditions on existing mortgages. As for capex, growth in intellectual property spending will remain robust (software and R&D), while prospects are more uncertain more capital-intensive spending (equipment and non-residential construction). Public disbursements (CHIPS, IRA and Infrastructure law) will provide some support to the project pipeline despite bureaucratic rigidities. The deepening of the goods deficit will further outweigh the rising surplus in services, yielding a negative net exports contribution.

At the time of writing, the extent to which the Trump administration will deliver on campaign policy pledges is unclear, bringing significant uncertainty to the outlook (which have not been priced into our forecasts above). Tariffs and deportations, if large enough, would harm industries reliant on imported goods (manufacturing and retail) and undocumented labour (construction, agriculture, accommodation and food services), thus nudging the economy toward stagflation (less growth and more inflation). Furthermore, exporting industries will be exposed to retaliatory tariffs, as has happened in the past with agricultural products. Deregulatory policies, if deep enough, would provide some supply-side relief. Tax measures will only intervene as of 2026, after the expected extension and expansion of the 2017 Tax Cuts and Jobs Act (TCJA). The net effect of these policies will more likely than not be inflationary; their size and timing will determine the extent.

US dollar dominance allows fiscal largesse, external deficits will persist

Were it not for the attractiveness of US government bonds as the world’s benchmark reserve asset, the fiscal trajectory would be cause for immediate concern. Due to a combination of higher interest rates and persistently high primary deficits (even in a booming economy), interest expenditure has ballooned from a pre-pandemic average of 1.5% of GDP to 3% in 2024, and is expected to rise further as growth normalises but rates stay high. The largest items of spending (social security, health and defence) will continue to grow amid population ageing, rising medical costs and the need to modernise and maintain military capabilities. The push for improving government cost-efficiency should be comparatively small, with the largest potential targets for spending being politically sensitive (spending on veterans, opioid crisis, housing assistance), while cuts to civil service headcount can only go so far. TCJA extension will preserve important reductions to income taxes, and will be expanded by exempting overtime, tips and social security benefits, as well as a further reduction of the corporate tax rate to 15% from the current 21%. Tariff revenue will offset some of the foregone income, but only partially. On the net, new policies are expected to add 1-1.5% of GDP to the deficit each year if implemented as campaigned. Sovereign distress does not seem imminent, but will be a growing tail risk.

We expect a noticeable current account deficit to persist which will be easily financed. First, the good health of the consumer will yield persistent demand for imports, but on the other hand, investment will continue flowing into the economy, while the aforementioned additional deficit spending will create financing requirements. Tariffs could create a reduction of overall imports in the very short run, but trade partner diversification should progressively offset that effect, as well as the dollar's upside bias (especially if the Fed has to maintain rates at a higher level).

“America first” foreign policy, risks to Fed independence

Donald Trump and the Republican party secured a decisive victory in the November 2024 elections, winning the presidency by a comfortable margin in the electoral college (312/538 votes) and in both houses of Congress (220/435 House seats, 53/100 Senate seats). Furthermore, six of the nine judges serving on the US Supreme Court are Republican appointees (three of whom by Trump). The incoming administration will therefore feel emboldened (at least until the 2026 mid-term elections) to enact an agenda based on economic nationalism abroad and relatively market-friendly policies at home. China will be the main target of protectionist policies and security concerns, leading to continued trade decoupling and lingering geopolitical tensions. However, all traditional trading partners and diplomatic allies will face rising pressure and uncertainty as the Trump team seeks to reshape relations on a bilateral basis to the advantage of the US. Free-trade agreements like the USMCA will not shield countries from tariffs, as shown by threats directed at Canada and Mexico. It will, however, be possible for countries to negotiate carve-outs if they are able to meet US terms. The US security umbrella will, in general, be less reliable except where Israel support and China deterrence/containment are concerned. For Ukraine, a fast-tracked resolution will be sought and so more flexible terms will be offered to Russia. We expect that NATO membership will be preserved, but US reluctance to fully enforce security guarantees is plausible, thereby creating incentives for stronger self-reliance.

Regulation roll-back will be a cornerstone of the domestic agenda, targeting environmental restrictions, corporate reporting standards, permits for construction and O&G exploration, banking and crypto regulations. Though some clean energy subsides might be scrapped, most of the Inflation Reduction Act and CHIPS act policies should be continued. On tariffs and deportations, we expect execution to be slower and milder than what campaign pledges would suggest, but economically significant nonetheless. If the net effect of these policies is stagflationary enough, the incentives to clash with the Fed will be twofold. First, the Fed will want higher rates to fight inflation, while the executive will prefer lower rates to support nominal growth. Second, inflation and high rates are unpopular, and the public may be persuaded that the Fed can be blamed for both. The President cannot remove the Fed Chair, but he does hold significant sway over his base, and has a penchant for targeted attacks on individuals and organisations. Precedent like the 1979 “tractorcade” - where hundreds of cash-strapped farmers drove tractors to Washington D.C. to protest Chair Volcker’s rate hikes - shows that the Fed can be made into a target of public discontent.

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.

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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.

Last updated:January 2025