United States of America

Soft landing in sight, but not yet achieved

Despite durably high inflation and an aggressive monetary tightening cycle, activity was solid in 2023, with household consumption and public spending in particular driving growth. In 2024, growth is set to weaken as the effects of restrictive monetary policy persist and, in some cases, intensify. Rising delinquencies on auto loans and credit cards, for example, suggest consumers are starting to feel the pinch of higher interest costs. As a result, the contribution of household spending is likely to weaken, all the more so as support from the stock of excessive savings accumulated during the pandemic, which has now largely run its course, is also likely to wane. However, household spending should remain buoyed by income growth, thanks to a resilient job market (unemployment rate at 3.7% at the end of 2023). Real incomes should also benefit from moderating inflation. After a marked decline to 3.4% year-on-year by the end of 2023 from the peak of 9.1% reached in mid-2022, inflation should converge more slowly towards the Federal Reserve's (Fed) 2% target. The Fed is therefore likely to be cautious before cutting its target rate range, currently at 5.25%-5.50%, which is the highest level since 2001. However, progress made towards meeting the inflation target and the expected moderation in activity should allow the Fed to begin a rate-cutting cycle in the middle of the year. These rate cuts would stimulate residential investment in the second half of the year. Nevertheless, financial conditions will remain restrictive in 2024 and weigh on corporate spending. Incentives to invest in clean energy and semiconductors should continue to keep investment afloat. While public spending was buoyant in 2023, it is likely to be more cautious this year. Rising interest charges on debt and divergent views on fiscal policy in Washington, especially in an election year, will limit federal spending. State and local governments, on the other hand, will continue to implement federal investment programmes, including infrastructure, thus maintaining a positive contribution from public spending. The surprising boost to activity from net exports in 2023 is likely to run out of steam, on back of the delayed effects of a strong dollar.

Fiscal deficit stabilises at a high level

Falling government revenues following atypical growth in the previous fiscal year, and rising debt servicing costs contributed to a widening deficit in 2022-23. In the current fiscal year, the deficit is expected to narrow again, although it will remain well above the deficits recorded prior to the Covid-19 crisis. Under the Fiscal Responsibility Act of June 2023, which ended the debt ceiling crisis, non-defence discretionary spending would therefore remain unchanged. In addition, a divided Congress is also likely to hamper the passage of major legislation, limiting new spending. Expenditures on Social Security, Medicare and Medicaid, however, will continue to be driven by baby-boomer retirements. In addition, given the international context, aid to Israel and Ukraine could be revised upwards. Interest charges, which reached 2.5% of GDP in 2023 (1.6% in 2020), will also continue to weigh. Although the debt burden is heavy, the authorities remain in a position to meet their financial obligations given the country’s unrivalled financing flexibility thanks to its status as issuer of the USD, the world's main reserve currency. However, the last-minute agreement to raise the debt ceiling in 2023 to avoid default demonstrated that politicisation of the debt limit is a recurring pitfall. This was one of the risks cited by Fitch to justify downgrading the credit rating of US debt to AA+ in August 2023.

The current account deficit will remain high in 2023, fuelled mainly by the structural deficit in the merchandise balance (3.9% of GDP in 2023). It should moderate, however, as goods imports slow in line with domestic demand. New liquefied natural gas production capacity will support exports, particularly to Europe. After experiencing significant movements linked to disruptions in transport services in recent years, the surplus on the services account should remain stable at around 1% of GDP. The positive primary income balance (0.7% of GDP) is expected to improve slightly, as receipts from interest and deposits on US assets abroad increase. International cooperation transfers and remittances will keep the transfer balance in deficit (around 0.6% of GDP). The attractiveness of US assets and the USD is generating portfolio investments (Treasury bills, equities, etc.) to finance the deficit.

2024 elections set against a backdrop of high-running domestic and international tension

Democrat Joe Biden became President in January 2021 after a tumultuous transition marked by the storming of the Capitol on 6 January by supporters of his predecessor, Republican Donald Trump. Barring a major surprise, the November 2024 elections are shaping up to be a rematch of the duel between the last two presidents. Despite questions surrounding his age and health, Joe Biden remains the most credible alternative on the Democrat side. On the Republican side, Donald Trump has begun the primaries holding a comfortable advantage in the polls. The numerous legal proceedings against him, notably for his role in the events of 6 January 2021, should not prevent him from running, but will punctuate the campaign. Divergent political orientations are likely to fuel uncertainty in what promises to be a tight presidential race. The race for control of the House of Representatives and the Senate will also be intense and could result in a divided Congress. In a polarised political context, the political leanings of the candidates point to divergent outlooks on domestic and foreign policy.

In an environment of heightened technological competition, and with tensions in the China Sea remaining high, rivalry with China continues to dominate US foreign policy and is likely to remain a priority whatever the outcome of the November elections. At the same time, the war in Ukraine has reinforced the Biden administration's efforts to revive the US presence in multilateral institutions and is underscoring the drive to re-engage with diplomatic, security and economic partners, particularly in Europe, as opposed to the Trump administration’s approach. Under a Biden administration - like Trump's - the long-standing alliance with Israel, particularly in the context of the war against Hamas, would most likely be preserved.

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 2024