United States of America

A vibrant (but polarized) economy

Left to its own devices, the U.S. economy should retain its good shape in 2026. The bulk of the tariff’s costs are being absorbed by firms, which goes a long way to explaining why inflation has so far undershot expectations. Business insolvencies are overshooting pre-pandemic levels, signaling that the weakest firms are struggling to keep up with higher costs even as the strongest firms do very well. Similar polarization dynamics explain why demand for goods and services has remained so strong. Conservative estimates put the share of consumption (70% of GDP) of the wealthiest quintile at 35%; the highest at 50-60%. The wealthier you are, the more exposed you are to the equity market: The top 0.1% hold about 70% of their financial wealth in equities versus 15% to 20% for the bottom 50%. Investor enthusiasm around A.I. therefore isn’t just supporting CAPEX, it is underpinning spending for wealthier Americans. Besides, extra tax refunds from the One Big Beautiful Bill Act (OBBBA) should provide a 0.8% boost to household income throughout the year. Likewise, we expect the depreciation and R/D expensing provision to boost capital investment, extending the CAPEX momentum beyond the A.I ecosystem. If anything, we might get too much demand and the convergence to 2% inflation we expect, once tariff pass-through is done, might be postponed.

Two areas should be closely monitored: the stock market and the job market. Potential triggers for an equity correction include a reversal in investor sentiment on A.I., as well as unpredictable policy from a White House afraid of losing Congress in the midterm elections. As for the job market, you would expect the good growth picture to nurse it back to health. But given the strong incentives for technology-driven labor substitution, we’ll call the end of the “low-fire, low-hire” job market when we see it. Worker scarcity will become increasingly manifest in sectors reliant on undocumented labor (construction, food industry, hospitality). The Fed is expected to bring rates closer to 3%, though a pause is not off the cards if inflationary pressures intensify. Despite intensifying pressure from the executive, we don’t expect Fed independence to be concretely compromised as long as it is defended by the Supreme Court. We therefore expect the recovery in construction to be rather protracted and backloaded throughout the year. With the effects of tariff-driven inventory buildup fading, we expect a positive contribution from net exports.

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 imminent concern. Due to a combination of higher interest rates and persistently high primary deficits (3% of GDP), interest expenditure has ballooned from a pre-pandemic average of 1.5% of GDP to 3.1% in 2025 and is expected to rise further as growth normalizes but rates stay high. The largest items of spending (social security, health and defense) will continue to grow amid population ageing, rising medical costs, and the need to modernize 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. The OBBBA, which introduces wide-reaching tax cuts while only partially reducing spending (healthcare, food aid and green energy subsidies), should result in a net increase of USD 3-3.7 tn. to the federal debt over the next ten years. Tariffs have proven a useful instrument to raise revenue (USD 273 bn. in 2025, 0.9% of GDP), but not at a scale that will meaningfully offset broader deficitary pressures. Furthermore, a Supreme Court ruling curtailing the political legitimacy of a large share of the current tariff regime would introduce a revenue gap. Given the Republican party’s strong incentive to appease economic concerns going into the midterms, there is upside risk to expenditure, for example the proposal to distribute USD 2 000 “tariff rebate checks” to households. We see potential for continued growing pressure on sovereign rates in the medium term.

Despite some reduction, the country will continue to accumulate large current account deficits for the foreseeable future. First, the good health of the consumer will yield persistent demand for imports, but on the other hand, foreign investment should 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. The US’s external “vulnerabilites” would only become an issue if the statuses of the dollar as reserve currency and treasuries as safe haven assets were to significantly erode. There have been, arguably, some early signs of this in 2025, but it’s early to tell if it is a blip or a trend.

“America first” foreign policy, risks to Fed independence

President 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). Given the very slim 5-seat majority, the record number of representatives retiring (43), the high number of competitive districts (42), and the tendency for incumbents to be sanctioned in midterm elections; the House stands good chances of flipping Democrat. Republicans stand better chances of keeping the Senate, but it is also at risk. Majorities in both chambers have been crucial for passing flagship policies, such as extending and expanding the 2017 tax cuts, boosting budget for immigration enforcement, restricting eligibility conditions for Medicaid, and rolling back clean energy and EV tax credits. Most types of legislation also require 60 votes in the Senate, giving Democrats some power to obstruct policy and occasionally leading to government shutdowns. The Supreme Court leans Republican (6-3), and its commitment to act as a check on executive power is being challenged by the White House willing to test boundaries. The President is also pressuring the Fed to lower rates further than it would otherwise. Between 1 and 3 seats of the 12 in the Fed policymaking committee will be replaced by the President in 2026, including the Chairperson. This would not be enough to control the committee, even if all Trump appointees follow the President’s lead. Though there is still some margin before the Fed’s independence is compromised, it is getting thinner.

An expansion of the tariff regime should not be ruled out, given the president’s predilection for this tool. However, we’d expect additional tariffs to be piecemeal compared to all those that were added in 2025, or used to reconstitute tariff regimes ruled unlawful. The relationship with China is a major source of potential instability. There is a deep-rooted strategic competition between both superpowers. Both sides have used a variety of tools to pressure their rival’s economy (tariffs, currency manipulation, industrial subsidies, export restrictions of critical inputs such as semiconductors and rare earth minerals). At the time of writing, the relationship is undergoing relative détente, with a trade truce set to expire in November 2026. However, this state of affairs can be quickly reversed. The US will continue to seek decoupling from China in trade and finance, while reinforcing geopolitical influence in the Western Hemisphere, as shown most emblematically by rapidly escalating involvement in Venezuela and aspirations to acquire Greenland. The July 2026 USMCA review will redefine the terms of the trade relation with Canada and Mexico; the US’s main trading partners (20% of total trade). Our working assumption is that the agreement will survive, though it is harder to say if in the form of a full extension (from 2036 to 2042) or subject to another revision in 2027. The push for deregulation, especially regarding environment and reporting / compliance, is expected to continue and will result in less red tape for businesses.

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