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Country Profile Series

United States
In-depth PESTLE insights

PESTLE Country Analysis Report: United States ML00002-032/Published 06/2015


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PUBLICATION DATE: June 2015
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OVERVIEW
Catalyst

This profile analyzes the political, economic, social, technological, legal and environmental (PESTLE) structure in the US.
Each of the PESTLE factors is explored on four parameters: current strengths, current challenges, future prospects and
future risks.

Summary

Key findings

The US has strong democratic set up, however, deadlock between the two parties is likely to be a challenge

The US has a robust democratic setup, which has also proved to be its inherent strength. The countrys federal character
is well entrenched, as the states have their own legislative and executive powers that are integrated with national
policies. According to the World Bank's Worldwide Governance Indicators, in 2013, the US had a good percentile rank of
83.89 in voice and accountability. The principles of democracy are deep-rooted and the election process is considered to
be fair and transparent, with adequate participation of citizens. The country also has an active media, which functions as
an effective pressure group.

With Republicans having a majority in both the House of Representatives and the Senate, attaining political compromise
has become increasingly difficult. Failure to reach an agreement on annual spending plan forced a 16-day government
shutdown in October 2013; this was the most damaging instance of poor bipartisan cooperation. Deadlock in the
Congress extends beyond fiscal issues, as the US legislative chamber has been unable to reach consensus on vital
reforms concerning immigration, climate change, healthcare and energy security. The Republican leaders in both the
Senate and House of Representatives would find it difficult to stick to agreements with Democrats, as the Presidential
candidates from the Grand Old Party (The Republican Party) are likely to push for a more conservative agenda. It is
unlikely that the incumbent government will be able to address a number of pressing problems before the 2016
presidential elections.

Although fiscal deficit has seen remarkable declines in recent years, high public debt will remain a concern
unless reforms are adopted

Fast pace of fiscal consolidation forced by the Budget Control Act of 2011 and expiration of payroll tax cuts in FY2013
have helped the US federal government in reducing its fiscal deficit from 9.8% of GDP in 2009 to 2.81% of GDP in 2014.
This improvement in federal government finances represents the steepest five-year fall in fiscal deficit since the
demilitarization after World War II. According to projections from Congressional Budget Office (CBO), a non-partisan
federal agency within the legislative branch of the US, the deficit is expected to further fall to 2.7% of GDP in 2015 as the
strengthening economy boosts the federal governments revenues.

Despite these reductions, the US federal government needs to continue keeping checks on its high public debt, which
poses significant risks to the economy in the long run. The Congressional Budget Office (CBO) projects the public debt
rise to 77.15% of GDP by 2024, which was 35.15% in 2007. A high public debt can have severe negative consequences
for the US economy. First, major risks to the economy loom from an increase in debt servicing costs from an increase in
interest payments to bond holders. Second, to finance high government deficits, the majority of savings may be diverted
into buying of government securities rather than investment in productive capital goods, which will impede productivity

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and wage growth, and subsequently lower economic output. Third, higher debt costs are usually followed by higher
taxes, which discourage labor. Fourth, higher debt affects the governments ability to implement counter-cyclical
economic policies. It also crowds out private investment in the form of increased borrowing costs. Therefore, it affects
both private- and public-sector ability to influence growth and can affect economy in the long run.

Despite extensive social security measures, inequality remains a concern

The US ranks higher than other countries with an extensive social security system that cares for pensioners, the disabled
and the unemployed. As of December 2014, the social security system benefits 41.9 million retired workers and their
dependents, 6.1 million survivors of deceased workers and 10.9 million disabled workers and their dependents, thus
covering 59 million people. The US government also runs social insurance schemes such as Medicare and Medicaid to
provide healthcare access to elderly and less-privileged population. While Medicare guarantees healthcare access to the
population aged 65 and above, and younger people with disabilities, Medicaid provides health insurance to persons of all
ages whose income and resources are insufficient to pay for healthcare.

Despite this, income inequality has been a major problem in the US since the 1970s. According to MarketLine estimates,
the bottom 20% of the population accounted for just 2.82% of the countrys household income and the top 20%
accounted for 43.17% in 2013.The countrys Gini coefficient, with a range of zero (perfect income equality across all
households) to 100 (perfect income inequality across all households), was 47.6 during 2013, which indicates that the US
is among the poorest performers among OECD countries in terms of income inequality.

Although the US remains at the forefront of the global STI scene, increasing competition from China
possesses a threat to its leadership position

Since the years following World War II, the US has maintained its position of leadership in science, technology and
innovation (STI). The country is a world leader in terms of top scientific publications. In 2013, the US produced 199,531
top scientific publications, which was more than three times the volume produced by the second-highest producer,
China. Moreover, the US accounted 28.2% of total world top scientific publications followed by China accounting for
8.1%. According to Innovation Union Scoreboard 2015, the US has been consistently more innovative than the EU; in
addition, the US is performing better than EU on seven indicators such as tertiary education attainment, number of
international co-scientific publications, most-cited publications, scientific collaboration between public and private sector,
patents application in societal challenges, and license and patent revenues. Additionally, the country is at the forefront of
global STI cooperation, which has also played a very important role in maintaining the countrys leadership in STI
through synergistic partnerships.

Although the US possesses the finest STI system in the world, emerging players such as China could present challenges
to its innovation system. Chinas R&D expenditure has grown at a rapid pace in recent years, which has turned it into the
second largest R&D performer in the world ahead of Japan. According to MarketLine estimates, the Chinese spending
on R&D increased by around 290% during 200713 while the corresponding rise for the US was around 29%.China has
also overtaken the US in the number of doctoral graduates it produces in science and engineering streams annually.
Although China continues to lag the US in the quality of its scientific publications measured by the number of citations,
the worlds second largest economy has started to assimilate itself into the global STI scheme by engaging in
international collaborations, which will eventually lead to improvements. According to the OECD, China had 74,000
internationally collaborative publications in 2011, more than eight times the figure recorded in 1998 (9,000); 22,000 of
these 2011 collaborations were with US-based institutions compared to just 2,000 in 1998.

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The country has a comprehensive legal framework, but the multiplicity of regulations acts as a dampener

The US has an independent judiciary and fair business laws. Contractual agreements are always secure as long as they
meet the requirements of the government. The governments antitrust policy promotes competition and economic
efficiency. The government participates in the market only as a regulator.

Although the countrys strict corporate governance rules are hailed for their transparency, they have also been termed a
deterrent for foreign investors. Increasingly, foreign companies are complaining about the directives of the Securities and
Exchange Commission. Moreover, business enterprises are required to adhere to a large number of state and federal
government regulations depending on where their businesses are situated. The non-uniformity of business laws can
make operating in the country tough, as it becomes difficult for companies to meet the requirements of more than one
state.

Despite its strong environmental policy framework, the country performs poorly in addressing
environmental issues

The US has a strong environmental policy and legislative framework, with well-established institutions at federal and
state levels. The Clean Air Act is one of the major government initiatives to improve air quality. There are different
statutes for water, air, waste management and the preservation of biodiversity and various agencies under federal and
state governments implement the policy. The US has taken the initiative to develop clean energy technology and is
forming international partnerships such as the Asia Pacific Partnership on Clean Development and Climate to pursue
this. These steps will help in improving national and international environmental standards.

However, the US has failed to perform impressively on various environmental parameters. The Environmental
Performance Index (EPI) released by Yale University ranked the US 33rd out of 178 countries in 2014 EPI Index, with a
score of 67.52. The country performed poorly in various parameters such as Fisheries, Forests and Climate and Energy.
The US is ranked behind other advanced countries such as Switzerland (first), Germany (sixth), United Kingdom (12th)
and Canada (24th). Moreover, total energy CO2 emissions has increased from 5.36 billion metric tons in 2013 to 5.41
billion metric tons in 2014, according to US Energy Information Administration. This is above that of other high-income
countries, and emissions are currently increasing in both per capita and absolute terms. The US is a major contributor to
the increase in greenhouse gas emissions; despite the existence of a well-developed environmental technology industry,
these figures imply the lack of commitment to the environment and weak political will to enforce regulations.

PESTLE highlights

Political landscape

The Republican Party gained control over Senate and increased their hold on the House of
Representatives in mid-term elections in November 2014.

Democrats and Republicans were able to sort out budget issues after the 16-day government
shutdown in October 2013 resulting in the smooth passage of the budget agreement in December
2013 and increase in debt ceiling in February 2014; however, differences in political ideology have
stalled reforms in the country.

Economic landscape

President Obamas Dodd-Frank act marks a new era in the regulation of the financial sector. The
Volcker Rule, a part of the bill, prohibits banks from engaging in proprietary trading with depositors
money. The Volcker Rule also limits the growth of big banks and restricts them from participating in
hedge funds and private equity.
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The US economy grew at 2.42% in 2014 as the economy was spurred by strong job creation,
accommodative financial conditions and cheaper oil price.

Social landscape

The country has a vast proportion of highly educated population, as around 43% of the adult
population in the 2564 age group have attained tertiary education, as of 2012, a rate exceeded only
by Canada (53%), Israel (46%), Japan (47%) and the Russian Federation (53%) for this age group.

Low minimum wage and regional imbalances in job opportunities have raised poverty rates across
the country. Around 45.3 million people lived below the official poverty line in 2013, according to the
Census Bureau. The percentage of people below the poverty line was also high at 14.5% in 2013,
much higher than 12.5% recorded in 2007.

Technological landscape

The number of patents received by US from the United States Patent and Trademark Office went up
from 95,308 in 2009 to 1,58,713 in 2014. On a per million capita basis, the country received 497.7
patents from the USPTO which was higher than that of Japan (441.2), Republic of Korea (360.2),
Switzerland (316.3) and Germany (216.9).

The US R&D expenditure as a percentage of GDP was 2.8% of GDP, which constituted $469.53
billion in 2013. On an average, R&D expenditure increased by 2.76% during 200713.

Legal landscape

The World Bank ranked the US in the seventh place among 189 countries with respect to ease of
doing business in 2015. The country's economic policies are generally pro-business, and it has a
very well-developed financial regulatory system, with financial markets being open to competition.

High tax rates and differential federal rates of tax are major dampeners for business.

Environmental landscape

The total energy CO2 emissions has increased from 5.36 billion metric tons in 2013 to 5.41 billion
metric tons in 2014, according to US Energy Information Administration. Although CO2 emissions
fell by 9.76% during 200714, the emission levels are above those of other high-income countries.

In November 2014, both President Obama and President Xi Jinping announced targets to cut carbon
dioxide emissions. The US will reduce CO2 emissions by 2628% from 2005 levels by 2025 and
Chinas emissions would peak at around 2030 and aims to increase the share of nonfossil fuels in
primary energy consumption to 20% by 2030.

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Key fundamentals

Table 1: The US key fundamentals

2013 2014 2015f 2016f 2017f 2018f 2019f


GDP, constant 2005 prices ($trillion) 14.45 14.80 15.28 15.74 16.16 16.56 16.93
GDP growth rate (%) 2.22 2.42 3.22 3.03 2.68 2.46 2.24
GDP, constant 2005 prices, per capita ($) 45,662 46,409 47,535 48,599 49,521 50,353 51,088
Exports, total as a percentage of GDP 13.37 13.32 12.95 12.6 12.28 11.98 11.71
Imports, total as a percentage of GDP 16.46 15.35 15.04 14.74 14.46 14.20 13.98
Mid-year population, total (million) 316.44 318.89 321.36 323.85 326.35 328.86 331.37
Unemployment rate (%) 7.31 6.23 5.6 5.33 5.42 5.31 5.32
Mobile penetration (per 100 people) 94.15 95.19 96.12 96.95 97.69 98.34 98.93

Source: Country Statistics, MarketLine MARKETLINE

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TABLE OF CONTENTS
Overview 2

Catalyst 2

Summary 2

Key Facts and Geographic Location 13

Key facts 13

Geographical location 14

PESTLE Analysis 15

Summary 15

Political analysis 17

Economic analysis 20

Social analysis 27

Technological analysis 34

Legal analysis 39

Environmental analysis 42

Political Landscape 44

Summary 44

Evolution 44

Structure and policies 47

Performance 49

Outlook 50

Economic Landscape 52

Summary 52

Evolution 52

Structure and policies 53

Performance 55

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Outlook 64

Social Landscape 65

Summary 65

Evolution 65

Structure and policies 65

Performance 69

Outlook 71

Technological Landscape 72

Summary 72

Evolution 72

Structure and policies 72

Performance 74

Outlook 76

Legal Landscape 77

Summary 77

Evolution 77

Structure and policies 77

Performance 79

Outlook 79

Environmental Landscape 81

Summary 81

Evolution 81

Structure and policies 81

Performance 82

Outlook 83

Appendix 84

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Ask the analyst 84

Disclaimer 84

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TABLE OF FIGURES
Figure 1: Map of the US 14

Figure 2: Contribution of oil and natural gas production to GDP growth,19952014 21

Figure 3: Unemployment situation in the US (by age), May 2015 22

Figure 4: Fiscal position of the US federal government, 200014 23

Figure 5: Natural gas and crude oil reserves and production in the US, 20002013 24

Figure 6: Total energy production and consumption in the US (quadrillion Btu), 20122040f 25

Figure 7: Public sector debt in the US, 19902014 26

Figure 8: Income Distribution in the US 29

Figure 9: Healthcare expenditure (per capita and as % of GDP), 2012 or nearest year 30

Figure 10: Healthcare efficiency indicators, 2012 or nearest year 31

Figure 11: World top Scientific publications in select countries, 2013 35

Figure 12: Share of triadic patent families by blocs, 2012 36

Figure 13: New doctorates in science and engineering (average annual count), 200711 38

Figure 14: Corporate tax rate and revenue in select OECD countries, 2013 40

Figure 15: Change in federal government revenues due to repealing of tax Preferences for extractive
industries 41

Figure 16: The US key political events since 1940 45

Figure 17: The US key political figures 47

Figure 18: GDP and GDP growth rate in the US, 200919f 56

Figure 19: GDP composition by sector in the US, 2014 57

Figure 20: Agricultural output of the US, 201015f 58

Figure 21: Industrial output of the US, 201015f 59

Figure 22: Service output of the US, 201015f 60

Figure 23: External trade of the US, 201014 61

Figure 24: Consumer price index and consumer price index-based inflation in the US, 200919f 63

Figure 25: Unemployment rate in the US, 200919f 64

Figure 26: Religious composition in the US, 2007 67

Figure 27: Ethnic groups in the US, 2007 68

Figure 28: Public expenditure on education in the US, 200713 70

Figure 29: Expenditure on R&D in the US, 200713 74

Figure 30: Internet users in the US, 200913 75

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Figure 31: The US court system 78

Figure 32: Carbon dioxide emissions in the US, 200714 82

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TABLE OF TABLES
Table 1: The US key fundamentals 6

Table 2: The US key facts 13

Table 3: Analysis of the US political landscape 17

Table 4: Analysis of the US economic landscape 20

Table 5: Analysis of the US social landscape 27

Table 6: Analysis of the US technology landscape 34

Table 7: Analysis of the US legal landscape 39

Table 8: Analysis of the US environmental landscape 42

Table 9: Mid-year population by age (as % of total population, by gender), 2014 66

Table 10: Patents granted by the US Patent and Trademark Office per million population, 200914 73

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Key Facts and Geographical Location

KEY FACTS AND GEOGRAPHIC LOCATION


Key facts

Table 2: The US key facts

Country and capital


Full name United States of America
Capital city Washington

Government
Government type Constitution-based federal republic; strong democratic tradition
Head of state President Barack Obama
Head of government President Barack Obama

Population (2014 est.) 318.9 million

Currency Dollar

GDP per capita (purchasing power parity) (2014 est.) $54,800

Internet domain .us

Demographic details
Life expectancy (2014 est.) 79.6 years (total population)
77.1 years (men)
81.9 years (women)

Ethnic composition (2007 est.) White (79.96%), Black (12.85%), Asian (4.43%), Amerindian and
Alaska native (0.97%), native Hawaiian and other Pacific islander
(0.18%), two or more races (1.61%)

Major religion (2007 est.) Protestant (51.3%), Roman Catholic (23.9%), Mormon (1.7%), other
Christian (1.6%), Jewish (1.7%), Buddhist (0.7%), Muslim (0.6%),
other or unspecified (2.5%), unaffiliated (12.1%), and none (4%)

Country area 9,826,675 sq. km

Language English

Exports Agricultural products (soybeans, fruit, corn), industrial supplies


(organic chemicals), capital goods (transistors, aircraft, motor vehicle
parts, computers, telecommunications equipment), consumer goods
(automobiles, medicines)

Imports Agricultural products, industrial supplies, capital goods (computers,


telecommunications equipment, motor vehicle parts, office machines,
electric power machinery), consumer goods (automobiles, clothing,
medicines, furniture, toys)

Source: CIA The World Factbook and Country Statistics, MarketLine MARKETLINE

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Key Facts and Geographical Location

Geographical location

The US is located in North America, bordering both the North Atlantic Ocean and the North Pacific Ocean; it
shares its boundaries with Canada and Mexico.

Figure 1: Map of the US

Source: CIA The World Factbook MARKETLINE

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PESTLE Analysis

PESTLE ANALYSIS
Summary

The US has a robust democratic setup with the states having their own legislative and executive powers that are
integrated with national policies. The governments ability to fight both domestic and foreign terror is exemplary. The
major concerns with respect to the political climate are the divided nature of the US bicameral legislature and tensions in
relations with Russia. The former has affected the Congresss ability to pass reforms, the recent failure being that of the
gun control act proposed by President Barack Obama. The latter has created a deadlock between the US and its fellow
permanent UN Security Council members on issues such as the Russian annexation of Crimea.

On the economic front, the US has one of the most developed economic systems in the world with the country enjoying a
strong position in the manufacturing and services sectors. The economy continued to recover from the worst financial
crisis since 2008 as GDP grew at 2.42% and unemployment rate came down to 6.23% in 2014. Moreover, increasing
contribution from the shale energy sector boosted the economy both in terms of employment and GDP growth during the
economys recovery period. The shale gas boom has already made the USs ambition of energy self-sufficiency a reality
and this in turn is likely to help domestic manufacturing and improve the economys competitiveness. The labor market
situation is improving, but high unemployment and disconnected young population remains a concern. The US economy
faces a dilemma over interest rate hike because both raising rates too early or too late can create a problem for the
economy. Although fiscal consolidation has helped the US federal government in reducing its fiscal deficit from 9.8% of
GDP in 2009 to 2.81% of GDP in 2014which is expected to further fall to 2.7% of GDP in 2015the US federal
government needs to keep a check on its high public debt.

The American population enjoys a high standard of living with the country ranking fifth among 187 countries in the United
Nations 2014 Human Development Report. The US is far ahead of the other countries with an extensive social security
system that cares for pensioners, the disabled and the unemployed. The newly passed Workforce Innovation and
Opportunity Act (WIOA) aims to address the infamous skills gap by equipping the US workforce with necessary skills
and educational qualifications to match the requirements of the labor market. The US government runs social insurance
schemes such as Medicare and Medicaid to provide healthcare access to the older and less-privileged population. As of
mid-2015, President Obamas ambitious healthcare reforms have helped more than 16 million uninsured people to gain
health coverage. The distribution of income in the US is the most unequal of all major economies and the country faces
the risk of slower economic growth, serious labor shortages, rising tax rates and increasing social security costs over the
next few decades due to a rapidly ageing population.

Technology and innovation are key drivers of the US economy. The country is a world leader in scientific publications
and in emerging technologies such as biotechnology and nanotechnology. A large proportion of its manufacturing and
services output entails application of sophisticated technologies such as 3-D printing, which is being increasingly used by
US firms for prototyping and manufacturing. The US has a well-established intellectual property rights (IPR) protection
and enforcement system, which encourages commercialization of technology with ease. However, intellectual property
theft by countries like China is hurting the US innovation system as biotechnology, high technology and pharmaceutical
companies, which depend heavily on IP protection to cover costs and generate profits, are losing motivation to spend on
R&D. Nevertheless, Chinas advancement in the global STI network could create challenges for the US system;
especially given the latters reliance on highly skilled foreign talent.

The US has a sound legal framework and an independent judiciary, which helps in creating a positive investment climate.
United States ranked higher in Index of Economic Freedom 2015 and improved in six out of 10 economic indicators over

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PESTLE Analysis

previous period. The country enjoys high levels of labor freedom, business freedom and trade freedom. As JOBS Act
turned three in 2015, the Securities and Exchange Commission has made significant progress towards JOBS Act, which
would encourage the setting up of new businesses and give a fillip to job creation. However, the lack of uniformity in
business laws across states creates compliance challenges for businesses operating in multiple locations.

The US's leading economic status is not reflected in its performance on environmental indicators. The focus for the US
remains to increase the efficiency of its environmental management and energy use. Given its superpower status in the
world economy, the US needs to be more proactive in international environmental co-operation with a focus on climate
protection, biodiversity conservation and the reduce usage of toxic chemicals.

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PESTLE Analysis

Political analysis

Overview

The US has a robust democratic setup with the states having their own legislative and executive powers that are
integrated with national policies. The governments ability to fight both domestic and foreign terror is exemplary. The
frequency of terrorist attacks has declined drastically since the 2001 pentagon attacks, according to a December 2012
report. The government is looking to enter into two major free-trade agreements, which will open up vast opportunities of
trade for the US.

The major concerns with respect to the political climate are the divided nature of the US bicameral legislature and
tensions in relations with Russia. The former has affected the Congresss ability to pass reforms, the recent failure being
that of the gun control act proposed by President Barack Obama. The latter has created a deadlock between the US and
its fellow permanent UN Security Council members on issues such as the Russian annexation of Crimea, UNs role in
Syrian civil uprising and negotiations with Iran over its nuclear program.

Table 3: Analysis of the US political landscape

Current strengths Current challenges


Strong democratic setup Political partisanship is undermining the congress
Governments ability to combat terrorism

Future prospects Future risks


Focus on executive action due to political partisanship Straining ties with Russia
New free trade agreements

Source: MarketLine MARKETLINE

Current strengths

Strong democratic setup

The US has a robust democratic setup, which has also proved to be its inherent strength. The countrys federal character
is well entrenched, as the states have their own legislative and executive powers that are integrated with national
policies. According to the World Bank's Worldwide Governance Indicators, in 2013, the US had a good percentile rank of
83.89 in voice and accountability. The principles of democracy are deep-rooted and the election process is considered to
be fair and transparent, with adequate participation of citizens. The country also has an active media, which functions as
an effective pressure group. However, the involvement of business interest groups in the election process through the
provision of election campaign financing occasionally makes the system of policymaking biased.

Governments ability to combat terrorism

One of the major strengths of the US has been its ability to fight terrorist activity, originating from both within and outside
the country. According to a report published in December 2012 by the National Consortium for the Study of Terrorism
and Responses to Terrorism (START), a university based research center supported by Department of Homeland
Security, the frequency of terrorist attacks has dropped considerably since the 1970s. The report mentions that the
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PESTLE Analysis

number of terrorist attacks declined from 40 in 2001 to nine in 2011, with the smallest number of attacks recorded in
2006 (six). The report further says that law enforcement officials in the country have been increasingly able to thwart
terrorist attacks. In 2011, four out of nine terrorist attacks proved to be unsuccessful. In three of these unsuccessful
attacks, bombs were discovered before they exploded, while the fourth unsuccessful attempt involved an individual who
fired shots at the White House in an attempt to assassinate President Obama. In the wake of controversy over the
countrys surveillance programs, NSA chief Keith Alexander defended them saying that they had helped the intelligence
agency to thwart at least 50 terrorist attacks since 2001. Even in the cases of successful attacks, the US government has
been able to track down the perpetrators and punish them.

Current challenges

Political partisanship is undermining the congress

With Republicans having a majority in both the House of Representatives and the Senate, attaining political compromise
has become increasingly difficult. Failure to reach an agreement on annual spending plan forced a 16-day government
shutdown in October 2013; this was the most damaging instance of poor bipartisan cooperation. Deadlock in the
Congress extends beyond fiscal issues, as the US legislative chamber has been unable to reach consensus on vital
reforms concerning immigration, climate change, healthcare and energy security. Proportion of bills signed into law by
the president has seen a decreasing trend in each two-year session since 2005 and the situation worsened considerably
in the 113th legislative session. The Republican leaders in both the Senate and House of Representatives would find it
difficult to stick to agreements with Democrats, as the Presidential candidates from the Grand Old Party (The Republican
Party) are likely to push for a more conservative agenda.

The Republicans extended their majority in the mid-term House elections in November 2014, which was due to the
disappointment of the people with President Obama, inept handling of Ebola outbreak and the continuing threat of
Islamic State. It is unlikely that the incumbent government will be able to address a number of pressing problems before
the 2016 presidential elections. President Obama is expected to veto the bills of the Republican dominated Congress
and use his executive powers to make policies. Deadlock between both the parties is likely to impede resolution of major
issues facing the country.

Future prospects

Focus on executive action due to political partisanship


Due to the patchy record of the legislative branch of the government with respect to passage of important laws, President
Barack Obama has vowed in his State of the Union address in January 2014 to resort to executive power to bypass the
Congress. In the past, Obama has signed guidelines to defer deportations by two years for those who came to the US
illegally as children under his Deferred Action for Childhood Arrivals (DACA) program in June 2012. In January 2014, he
promised further executive action on immigration and border security. On climate change, Obama issued orders in
November 2013, which will force power plants to cut their Greenhouse Gas (GHG) emissions by 30% from their 2005
levels, by 2030.

Although Obamas intention of imposing tougher background checks on gun purchases failed to pass in the Senate, the
disappointment did not stop him from signing 23 separate executive orders on gun control. These orders have made
information regarding mental illness available in federal background checks and expanded research into the sources of
gun violence. In February 2014, Obama used his executive power to raise hourly wage for federal contract workers to
$10.10, effective from January 2015. He has also gradually extended federal rights for same-sex couples after the
Supreme Courts verdict in 2013 declared Defense of Marriage Act (DOMA) barring gay marriage as unconstitutional. In

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PESTLE Analysis

June 2015, the Supreme Court legalized same-sex marriage nationwide. The president is expected to continue with his
executive actions as the near-stalemate in the Congress is obstructing key reforms.

New free trade agreements

The US is negotiating a large-scale free trade agreement, known as Trans Pacific Partnership (TPP), with eleven other
nations. This agreement is an expanded version of an existing free-trade agreement between Brunei, Chile, New
Zealand and Singapore. The other countries negotiating the agreement are Japan, Australia, Canada, Malaysia, Mexico,
Peru and Vietnam. Other countries such as China and South Korea have also shown a keen interest in joining
agreement talks. The TPP, which is poised to become the worlds largest free trade agreement, not only intends to
address tariff and non-tariff barriers between negotiating countries and promote trade among member nations, but also
contains provisions on intellectual property laws. The latter has drawn heavy criticism from advocacy groups and
politicians from all member-states, who have expressed reservations about the US provisions on IP rights protection that
could affect the generic pharmaceuticals sector and make public healthcare expensive. The secrecy surrounding the
negotiations has also come under the scanner, with legal scholars and politicians in member states calling the process
undemocratic. Despite these criticisms, the negotiations have progressed.

The US is also in talks with the EU over a free trade agreement and both sides are expected to accelerate the
negotiation process in 2015. The Transatlantic Trade and Investment Partnership (TTIP) deal will be a big boost to
growth in both the US and the EU. According to an April 2013 study by the Polish Institute of International Affairs, the
FTA could boost the annual GDP of the EU and the US by 0.5 percentage points and 0.4 percentage points,
respectively, by the end of 2027. The FTA will also generate thousands of jobs in the both the economies, with the
number for the EU estimated at 400,000 per year by the European Commission.

Future risks

Straining ties with Russia

Relations between the US and Russia have been stressful in recent times. Three notable issues of deadlock have risen
between the US and its fellow permanent UN Security Council members: the Russian annexation of Crimea, UNs role in
Syrian civil uprising and negotiations with Iran over its nuclear program.

The US considers Russian annexation of Crimean Peninsula, which was administered by Ukraine until February 2014,
as illegal. The affirmative vote of Crimean residents in a subsequent referendum, who voted in favor of joining Russia in
March 2014, was also deemed invalid by 100 out of 193 member states of the United Nations (UN). The US is concerned
about Russian President Vladimir Putins expansionist stance in Eastern Europe and it has imposed a number of
economic sanctions on Russia. It has also threatened to impose more severe sanctions if Russia refuses to cut ties with
separatists in Eastern Ukraine.

Tensions over Ukraine also threaten US-Russian cooperation on Syria and Iran. Russia along with China has repeatedly
vetoed resolutions sponsored by the US and its European and Arab allies to impose sanctions on the Syrian regime.
Both Russia and the US have gone to the extent of accusing each other of supplying arms to warring sides. Although
international intervention in Syria has destroyed 92% of the declared chemical weapons, which has brought in
appreciation from Russia, the US and its allies remain concerned about the remaining 8%, which could prove detrimental
in the wake of Assad regimes fight with rebel groups.

Furthermore, in June 2015, Russia warned the US against a plan to store heavy weapons in Eastern Europe and stated
that this is NATOs most aggressive step since the end of cold war. There have been some close calls between the
Russian and NATO planes and ships that could result in an accident, which could escalate into a major confrontation.

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Economic analysis

Overview

The US has one of the most developed economic systems in the world with the country enjoying a strong position in the
manufacturing and services sectors. The US energy revolution boosted the economy in terms of both employment and
gross domestic product growth during the economys recovery period. The shale gas boom has helped the US to realize
its ambition of energy self-sufficiency and improved the economys competitiveness.

The labor market situation is improving, but high unemployment and underemployment among the young population
remains a concern. The US economy is also facing a dilemma over interest rate hike because both raising rates too early
or too late can create a problem for the economy. Although fiscal consolidation has helped the US federal government in
reducing its fiscal deficit from 9.8% of GDP in 2009 to 2.81% of GDP in 2014which is expected to further fall to 2.7% of
GDP in 2015the US federal government needs to keep a check on its high public debt.

Table 4: Analysis of the US economic landscape

Current strengths Current challenges


A well-developed economy Youth unemployment and disconnected youth
The shale energy revolution Dilemma over interest rate hike

Future prospects Future risks


Falling fiscal deficit High public debt
Self-sufficiency in energy

Source: MarketLine MARKETLINE

Current strengths

A well-developed economy

The US has one of the most developed economic systems in the world, enabling it to overcome deep global economic
crises. According to MarketLine, the countrys real GDP in 2014 stood at $14.8 trillion with a per capita level of $46,409
(at 2005 prices). The economy gathers strength from its diversity and its strong position in the manufacturing and
services sectors. It is a forerunner in industries such as automotive, aerospace, telecommunications, chemicals,
electronics and IT. Its traditional industries have also been strengthened by the adoption of modern technology, while US
services companies managed to remain cost-competitive by offshoring a number of services.

The shale energy revolution

The breakthrough in unconventional oil and natural gas extraction technology has reversed the trend of declining
production. This breakthrough boosted the economy in terms of employment and gross domestic product growth during
the economys recovery period. Moreover, declining oil imports have reduced the US trade deficit. According to Council
of Economic Advisers estimates, an increase in oil and natural gas production alone contributed around 0.3% to real
GDP growth in 2014, much higher than its contribution in the pre-crisis period. According to 2015 Economic Report of the
President, 133,000 jobs were created in the oil and natural gas industries during 201013. During 200613, the trade

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deficit declined by 2.7%, of which 0.6% was due to a shrinking trade deficit in petroleum products. The shale revolution
continues to boost the economic growth and create more jobs.

Figure 2: Contribution of oil and natural gas production to GDP growth,19952014

0.35
0.29
0.3
0.25 0.22 0.22
0.2
percentage

0.15
0.09 0.08
0.1
0.04 0.03 0.04
0.05
0.01
0
-0.05 -0.02

Source: U.S. Energy Information Administration, CEA calculations MARKETLINE

Current challenges

Youth unemployment rate and disconnected youth

High youth unemployment is a major concern for the US government. According to data from the US Department of
Labor, the countrys unemployment rate fell from 9.9% at the end of 2009 to 5.5% as of May 2015. Unemployment rate of
young adults aged 2024 remains markedly higher at 10.1% and for young youth aged 1619 it is around 17.9%, which
is almost four times the 4.7% unemployment rate among population aged 2554 in the labor force as of May 2015. The
situation is so grim that even college graduates with a bachelors degree are finding it difficult to get jobs. According to a
study by the Center for College Affordability and Productivity, half of all college graduates work as retail salespersons,
cashiers and waitersjobs that require less than a four-year degree. More than a third of college graduates hold jobs
such as taxi-drivers and parking-lot attendants that require no more than a high school diploma.

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Figure 3: Unemployment situation in the US (by age), May 2015

20
18
16
14
Percentage

12
10
8
6
4
2
0
16-19 20-24 25-34 35-44 45-54 55 and Over

Source: U.S. Department of Labor MARKETLINE

The American youth is also highly leveraged. Student debt is already over $1.2 trillion and around 40% of households led
by a person under the age of 35 carry a student debt. According to research by the Center for American Progress, a
public policy research and advocacy organization, the high rate of unemployment among the young is leading to a higher
rate of default on education loans, and many students are moving back to live with their parents. .

According to Social Science Research Councils Measure of America project 2015, the number of disconnected youth,
who are teenagers and young adults between the ages of 1624 and are neither working nor in school, reached
5,527,000 or 13.8% of youth aged between 1624 as of June 2015 . The number of disconnected youth rose sharply
from 4,890,000 in 2008 and did not come back to the precrisis level even though the economy continues to recover.
Disconnected youth and un/under employment costs dearly to both individuals and society. It has been documented that
those who have been un/under employed for more than two years just fall of the jobs radar permanently as their skills
start becoming obsolete. In 2013, the youth disconnection cost stemming from incarceration, Medicaid, public assistance
and supplemental security income payments amounted to $26.8 billion, which is close to the federal governments
spending on science. The government needs to address the problems of youth un/underemployment and disconnection,
which might have serious negative ramifications for the society in the long run.

Dilemma over interest rate hike

The US economy is facing a challenge over hiking the target range for the federal funds rate. Since the US economy is in
recovery phase, raising interest rates too early could cause financial instability and halt the economy. On the other hand,
raising interest rate too late could result in inflation that could move beyond 2% Federal Reserves mid-term objective.
However, global disinflationary trend and strengthening dollar may dampen inflation. In June 2015, the Federal Open
Market Committee (FOMC) left the interest rate unchanged and maintained the status quo of near zero interest rate
(range 00.25%) since 2008. According to the committee, the decision to determine that how long to maintain this status
quo will depend on various inputs, including inflation, inflation expectations, labor market conditions, financial and
international development.
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Future prospects

Falling fiscal deficit

The fiscal deficit has reduced to its lowest level since 2008. The federal budget deficit stood at $485 billion (2.81% of
GDP) in 2014 as compared to $680 billion (4.1% of GDP) in 2013. Fiscal consolidation forced by the Budget Control Act
of 2011 and expiration of payroll tax cuts in FY2013 have helped the US federal government in reducing its fiscal deficit
from 9.8% of GDP in 2009 to 2.81% of GDP in 2014. This improvement in federal government finances represents the
steepest five-year fall in fiscal deficit since the demilitarization after World War II. According to projections from
Congressional Budget Office (CBO), a non-partisan federal agency within the legislative branch of the US, the deficit is
expected to fall to 2.7% of GDP in 2015 as the strengthening economy boosts the federal governments revenues.

Figure 4: Fiscal position of the US federal government, 200014

4.00

2.00

0.00

-2.00
% of GDP

-4.00

-6.00

-8.00

-10.00

-12.00
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Source: Congressional Budget Office, CBO MARKETLINE

Self-sufficiency in energy

The recent oil and gas boom in the US based on extraction of natural gas from shale deposits and tight oil from low-
permeability shale, sandstone and carbonate formations is expected to pave the way to energy independence. These
new discoveries have led to an increase in production of crude oil by 47% during 200713. From 2007 to 2013, crude oil
production increased from 1.85 billion barrels to 2.72 billion barrels whereas crude oil reserves grew from 21.32 billion
barrels to 33.37 billion barrels. According to estimates from US Energy Information Administration (EIA), shale gas
proved reserves grew more than six times during 200713 while shale gas production increased more than eight times in
the same period. In 2013, shale gas proved reserves reached at 159.12 trillion cubic feet and shale production stood at
11.42 trillion cubic feet. Forecasts from EIA suggest that production of shale gas will account for 50% of total natural gas
production by 2040. Tight oil is also expected to follow a similar trend; although outlook for its production is uncertain as
tight oil development is still at an early stage. The combined application of two technologieshorizontal drilling and

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hydraulic fracturing is expected to drive this growth in energy production.

Figure 5: Natural gas and crude oil reserves and production in the US, 20002013

600 40
a) Natural gas and crude oil reserves
35
500
30
400
Trillion cubic feet

Billion barrels
25

300 20

15
200
10
100
5

0 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Dry Natural Gas (left-axis) Shale Gas (left-axis) Crude Oil (right-axis)

40 3
b) Natural gas and crude oil production
35
2.5
30
Trillion cubic feet

Billion barrels
25

20 1.5

15
1
10
0.5
5

0 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Dry Natural Gas (left-axis) Shale Gas (left-axis) Crude Oil (right-axis)

Source: U.S. Energy Information Administration MARKETLINE

Increased domestic petroleum and natural gas production is set to reduce the countrys dependence on foreign countries
for fulfillment of its energy needs. According to estimates from EIA, the gap between energy production and consumption
will shrink in the next three decades from 14.45% in 2013 to minus 0.85% in 2040 (Figure 8), which would bring a
dramatic change in US economy by shifting from net importer to net exporter of energy supply. Increased use of
domestically produced bio-fuels, demand reduction resulting from rising energy prices and the adoption of new efficiency
standards for vehicles will also help the US. In effect, the oil and gas boom will lead to a more balanced energy market
and will reduce the threat of supply shortages.

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Figure 6: Total energy production and consumption in the US (quadrillion Btu), 2012
2040f

110

105

100
Quadrillion Btu

95

90

85

80

75
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
Production Consumption

Source: U.S. Energy Information Administration MARKETLINE

Future risks

High public debt

The US federal government needs to keep a check on its high public debt, which poses significant risks to the economy
in the long run. According to Congressional Budget Office (CBO), federal debt held by the public as a proportion of GDP
more than doubled during 200714 from 35.15% to 74.08%. In 2014, the federal debt held by the public amounted
$12.78 trillion compared to $5.04 trillion in 2007. The majority of spending during this period could be attributed to costs
arising from the financial crisis of 2008 in the form of bailouts of private sector companies, healthcare expenditure and
bulging social-security costs due to large-scale unemployment. The CBO projects the public debt to rise more mildly to
77.15% of GDP by 2025.

A high public debt can have severe negative consequences for the US economy. First, major risks to the economy loom
from an increase in debt servicing costs. In light of the Federal Reserve adopting an accommodative monetary stance to
spur job growth in the economy, interest rates in the domestic economy have stayed low. The volatility in the
international economic climate has also resulted in investors flocking to US Treasuries in search of safety. However, an
increase in Treasury yields can result in an increase in interest payments to bond holders and thus increase debt-
servicing costs for the government, further straining government finances. Second, to finance high government deficits,
the majority of savings will be diverted into buying government securities rather than investment in productive capital
goods. This may act as an impediment to productivity and wage growth, and subsequently lower the economic output.
Third, higher debt costs are usually followed by higher taxes, which discourage labor. Fourth, higher debt affects the
governments ability to implement counter-cyclical economic policies. It also crowds out private investment in the form of
increased borrowing costs. Therefore, it affects both private- and public-sector ability to influence growth and can affect

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the economy in the long run.

Figure 7: Public sector debt in the US, 19902014

14 80.00

12 70.00

60.00
10
50.00

percentage
8
$ trillion

40.00
6
30.00
4
20.00

2 10.00

0 0.00
1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014
Public Debt (Absolute) Public Debt (% of GDP)

Source: Congressional Budget Office MARKETLINE

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Social analysis
Overview

The American population enjoys a high standard of living with the country ranking fifth among 187 countries in the United
Nations 2014 Human Development Report. The US ranks far ahead of other countries with an extensive social security
system that cares for pensioners, the disabled and the unemployed. The newly passed Workforce Innovation and
Opportunity Act (WIOA) aims to address infamous skills gap by equipping the US workforce with necessary skills and
educational qualifications to match the requirements of the labor market.

The US government runs social insurance schemes such as Medicare and Medicaid to provide healthcare access to
elderly and less-privileged population. In 2010, President Obama signed the health care law, Affordable Care Act, to
provide affordable and quality health coverage for people. By mid2015, more than 16 million have gained health
coverage. The distribution of income in the US is the most unequal of all major economies and the country faces the risk
of serious labor shortages, rising tax rates and increasing social security costs over the next few decades due to a
rapidly ageing population.

Table 5: Analysis of the US social landscape

Current strengths Current challenges


High standard of living Increasing income inequality
Strong benefits system for elderly and less-privileged population Expensive healthcare system

Future prospects Future risks


Expansion of healthcare coverage Ageing population
Focus on workforce development

Source: MarketLine MARKETLINE

Current strengths

High standard of living

The American population enjoys a high standard of living. The United Nations Development Programme, which ranks
187 countries on parameters such as life expectancy, access to education and income levels, placed the US in the fifth
position in its 2014 Human Development report behind Norway, Australia, Switzerland and Netherlands. According to
Better Life Index 2015, United States has an average household net-adjusted disposable income per capita of $41,355
much higher than OECD average of $25,908. Furthermore, the average household net financial wealth per capita in the
US ($145,769) is more than double of OECD average ($67,139). Life expectancy of the population, estimated at 79.6
years by MarketLine, is also around the OECD average of 80 years. Moreover, 89% of the adults in the 2564 age group
had a high school degree, which is significantly higher than the OECD average of 75% reflecting strong performance of
American adults in terms of educational attainment.

Strong benefits system for elderly and less-privileged population

The US ranks far ahead of other countries with an extensive social security system that cares for pensioners, the

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disabled and the unemployed. As of December 2014, the social security system benefits 41.9 million retired workers and
their dependents, 6.1 million survivors of deceased workers and 10.9 million disabled workers and their dependents, thus
covering 59 million people. The US government also runs social insurance schemes such as Medicare and Medicaid to
provide healthcare access to elderly and less-privileged population. While Medicare guarantees healthcare access to the
population aged 65 and above, and younger people with disabilities, Medicaid provides health insurance to persons of all
ages whose income and resources are insufficient to pay for healthcare.

Current challenges

Increasing income inequality

Income inequality has been a major problem in the US since the 1970s. According to MarketLine estimates, the bottom
20% of the population accounted for just 2.82% of the countrys household income and the top 20% accounted for
43.17% in 2013. The countrys Gini coefficient, with a range of zero (perfect income equality across all households) to
100 (perfect income inequality across all households), was 47.6 during 2013, which indicates that the US is among the
poorest performers among OECD countries in terms of income inequality.

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Figure 8: Income Distribution in the US

a) Income share in quintiles, 2013


50.00
43.17
45.00
40.00
35.00
Percentage

30.00 27.77
25.00
20.00 17.65
15.00
8.59
10.00
5.00 2.82
0.00
Bottom Second Third quintile Fourth Top quintile
quintile quintile quintile

b) Gini Index, 2013


50
45
40
35
Index Value

30
25
20
15
10
5
0

Source: Country Statistics, MarketLine MARKETLINE

Expensive healthcare system

The US has the most expensive healthcare system in the world with an average individual spending $8,745 annually on
health in 2012. The figure is 42% higher than the per capita spending of Norway ($6,140), which has the second most
expensive healthcare system in the world, and almost 150% higher than the average of 34 OECD countries ($3,484).
Moreover, taxpayers foot most of the bill, as most of the population does not have access to subsidized healthcare. The
share of public expenditure in total healthcare expenditure was just 48% in 2012, which amounts to two-thirds of the
OECD average.

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Figure 9: Healthcare expenditure (per capita and as % of GDP), 2012 or nearest year

10000 Healthcare expenditure (per capita and as % of GDP), 2012 or nearest year 18.0
9000 16.0
8000 14.0
7000
12.0

Percentage
6000
$ billion

10.0
5000
8.0
4000
6.0
3000
2000 4.0

1000 2.0

0 0.0

Total expenditure on health per capita (PPP) Total expenditure on health, % of GDP

Share of public expenditure in total healthcare expenditure, 2012 or nearest year

90

80
Percentage

70

60

50

40

Source: OECD MARKETLINE

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Figure 10: Healthcare efficiency indicators, 2012 or nearest year

Doctor consulations, 2012 or nearest year


16
14
Number per capita

12
10
8
6
4
2
0

Average length of stay in hospital, 2012 or nearest year


20.0

16.0
Number of Days

12.0

8.0

4.0

0.0

Total expenditure on pharmaceuticals and other medical non-durables per capita (PPP), 2012 or
nearest year
1200

1000

800

600
$

400

200

Source: OECD MARKETLINE

Healthcare spending in the US is high despite low frequency of doctor consultations and short hospital stays. An average
American makes only four visits to a doctor annually compared to 14 visits by a South Korean, although an average
resident in South Korea spends less than a fourth spent by an average American ($2,291) on healthcare. Furthermore,
average length of hospital stay in the US per discharge was just 4.8 days, much lower than 16.1 days in South Korea.
Even commonly prescribed drugs such as Cymbalta and Lipitor are expensive in the US. According to International
Federation of Health Plans, the average cost of a months supply of Cymbalta was $176 in the US in 2012. The
corresponding prices in the UK and France were $48 and $47, respectively. Similarly, a months supply of Lipitor cost
$124 in the US in 2012 compared to $43 in the UK and $48 in France. The government needs to take concrete
measures to make the healthcare system more affordable to avoid the detrimental effect of the cost of healthcare on the

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health status of its population.

Future prospects

Expansion of healthcare coverage

President Obamas ambitious healthcare reform is projected to increase health insurance coverage for the working
population to 94% by 2020. The reform, known as Patient Protection and Affordable Care Act, (also known as
Obamacare) is the most comprehensive shift in US social policy in decades and aims to extend insurance coverage to
29 million previously uninsured people through an overhaul of the US healthcare system. According to Council of
Economic Advisers, since 2011 when the Affordable Care Act became law, more than 16 million people have gained
health insurance coverage and health care prices have gone up at the slowest rate in last 50 years.

The Act bars insurers from excluding coverage to people with pre-existing medical conditions, and prevents them from
arbitrarily dropping policyholders. Individuals are required to obtain health insurance, or pay fines of up to 2.5% of
income from 2016. Firms with more than 100 workers that do not offer medical coverage could face penalties between
$2,000 and $3000 per full-time employee, effective from January 1, 2015. For medium-sized firms with 5099
employees, the Obama administration extended the compliance period by one year in February 2014, which gives them
time until January 1, 2016 to fulfill the this employer mandate. Furthermore, Medicaid, the government health insurance
program for the poor, will be available to everyone with incomes of up to 133% of the poverty level. According to
Congressional Budget Office (CBO) estimates, the law will help the federal government in reducing federal government
fiscal deficit by $1.6 trillion by 2032, which has substantially improved the long-term budget outlook.

Focus on workforce development

Despite the Bureau of Labor Statistics (BLS) reporting job vacancies to the tune of 5.4 million at the end of April 2015,
around 12 million Americans are either unemployed or underemployed since 2009. The manufacturing sector had around
600,000 vacant positions in 2013 due to inability of employers to hire workers possessing adequate skills. In July 2014,
both houses of the US Congress passed Workforce Innovation and Opportunity Act (WIOA), which aims to address this
infamous skills gap by equipping the workforce with the requisite skills and education to meet the needs of the labor
market.

Provisions taken by WIOA guarantee realistic access to one-stop centers and training providers, augment the flexibility of
funds at the local level and sets common outcome metric for all core programs under the bill. Additionally, the act
prevents bureaucracy by eliminating 15 previous programs. It supports successful transitions to postsecondary
education, training or employment and requires the Secretary of Education to conduct assessment and research in the
area of adult education. Other amendments include better alignment of disability programs as the bill requires the state
vocational rehabilitation programs to set aside 15% of their federal program funds to help people with disability to
transition from secondary to post-secondary school and employment.

Future risks

Ageing population

Like most developed economies, the US is facing the problem of an ageing population, as the baby boomer generation
grows older. According to MarketLine, the countrys median age increased by three years in a short span of thirteen
years since 2000, having reached 38 years in 2014. The government's finances will increasingly feel the pressure of the
needs of an ageing population and a declining labor force. According to a White House release, social security benefits
constitute 90% of the income of a third of Americans over the age of 65. Furthermore, with around 10,000 baby-boomers

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turning 65 every day, the number of people contributing to the social security system has been steadily declining.

Population ageing has raised concerns among policymakers about social security fund, as the level of expenditure in
coming years will far exceed contributions to the fund. According to a 2013 report by trustees of the Federal Old-Age and
Survivors Insurance and Federal Disability Insurance (OASDI) Trust Funds, by 2021, the social security program is
expected to be in deficit for the first time ever. The fund is already in deficit since 2010 if interest income is disregarded.
The funds reserves, which stood at approximately $2.7 trillion at the beginning of 2013, are expected to be depleted by
the end of 2033. At the time of depletion of reserves, it is estimated that social security will be able to provide only 77% of
promised benefits from trust income. Therefore, unless the government carries out social security reforms, there will be
an excessive burden on the government's finances.

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Technological analysis

Overview

Technology and innovation are key drivers of the US economy. The country is a world leader in production of scientific
publications and in emerging technologies such as biotechnology and nanotechnology. A large proportion of its
manufacturing and services output entails application of sophisticated technologies such as 3-D printing, which is being
increasingly used by US firms for prototyping and manufacturing.

The US has a well-established intellectual property rights (IPR) protection and enforcement system, which encourages
commercialization of technology with ease. However, intellectual property theft by countries like China is hurting US
innovation system as biotechnology, high technology and pharmaceutical companies, which depend heavily on IP
protection to cover costs and generate profits, are losing motivation to spend more on R&D. Nevertheless, Chinas
advancement in the global STI network could create challenges for the US system; especially given the latters reliance
on highly skilled foreign talent.

Table 6: Analysis of the US technology landscape

Current strengths Current challenges


Global STI leader Intellectual property theft
Well-established IPR system

Future prospects Future risks


Significant development in emerging technologies Competition from China
Emergence of 3-D printing

Source: MarketLine MARKETLINE

Current strengths

Global STI leader

In the years following World War II, the US continued to maintain its position of leadership in science, technology and
innovation. The country is a world leader in terms of production of top scientific publications, which are published in top
10% of journals whose ranking is based on the Scientific Journal Ranking (SJR). In 2013, the US produced 199,531
scientific publications, which was more than three times the volume produced by the second-highest producer, China.
Moreover, the US accounted 28.2% of total world top scientific publications followed by China with 8.1%. According to
Innovation Union Scoreboard 2015, the US has been consistently more innovative than the EU; in addition, the US is
performing better than EU on seven indicators such as tertiary education attainment, number of international co-scientific
publications, most-cited publications, scientific collaboration between public and private sector, patents application in
societal challenges, and license and patent revenues. Additionally, the country is at the forefront of global STI
cooperation, which has also played a very important role in maintaining USs leadership position in STI through
synergistic partnerships.

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Figure 11: World top Scientific publications in select countries, 2013

250000

200000
Number

150000

100000

50000

World Top Scientific Publications

Source: OECD MARKETLINE

Well established IPR system

The US has a well-established intellectual property rights (IPR) protection and enforcement system, which encourages
innovators from other countries to come to the country. Of the 5,413,873 patents granted by the US Patent and
Trademark Office (USPTO) in 2014, 53.08% originated from the US. The US also accounted for about 26.48% of
worldwide triadic patents in 2012, which are typically high value patents, taken simultaneously at the European Patent
Office, the Japan Patent Office, and the USPTO.

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PESTLE Analysis

Figure 12: Share of triadic patent families by blocs, 2012

35

30
percentage of global share

25

20

15

10

0
Rest of the Germany United States EU28 Japan
World

Source: OECD MARKETLINE

As the country is home to a large number of multinational corporations, the US also encourages the commercialization of
technology with ease. Moreover, it also releases the Special 301 review reports annually, which include reviews of other
countries' IPR programs. Defaulting nations are required to make improvements in their IPR systems, which will help to
improve the global IPR environment.

Current challenges

Intellectual property theft

According to a May 2013 report by the US Commission on the Theft of American Intellectual Property, intellectual
property theft by countries like China costs the country an estimated $300 billion annually. However, major losses come
in the form of reduced innovation and R&D investments rather than loss of market share. Start-ups lose the ability to
attract investment, and R&D intensive industries such as biotechnology, high technology, and pharmaceutical companies
lose motivation to spend more on R&D. Both start-ups and R&D intensive sectors depend heavily on IP protection to
cover costs and generate profits. Furthermore, the shortening of innovation cycles means that an IP theft just prior to or
soon after a products release can erode company revenues. Companies also lose export and licensing markets because
of unfair competition, both within the country and abroad. IP theft undermines both the means and the incentive for
entrepreneurs to innovate, which eventually slows down the development of new inventions and industries and hinders
improvement in global productivity. Unless current trends are reversed, innovation can stagnate, resulting in adverse
consequences for both developed and developing countries.

Future prospects

Significant development in emerging technologies

The US has been at the forefront in developing and enhancing emerging sectors such as biotechnology and

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PESTLE Analysis

nanotechnology. These high-potential sectors open up opportunities for the US companies with expertise in these areas.
The US biotechnology market has enjoyed strong growth in recent years, despite the fact that it is the worlds biggest
and most mature; a trend, which is expected to continue as the US leads the way in this burgeoning market. According to
annual report for the National Nanotechnology Initiative (NNI), federal agencies invested $1.57 billion in nanotechnology-
related activities in 2014 and more than $22 billion since the inception of NNI in 2000. Nanotechnology has been gaining
prominence in industrial segments with applications in sectors such as electronics, energy and healthcare.

Emergence of 3-D printing

The US firms are moving fast toward an emerging technology, known as 3-D printing, to manufacture items or build
prototypes of new products. The 3-D printing process makes it possible to produce an object by creating a digital file
using Computer Aided Design (CAD) and sending it to 3-D printer. The printer starts creating the object by depositing
successive layers of material, which might be in liquid, filament or powder form, and fuses it so that it takes the shape of
the desired object. In effect, the manufacturing process in 3-D printing is additive in contrast to subtractive processes
used in traditional manufacturing where material is cut to produce the component.

Although the technology was invented in 1984 and has been in use by large corporations, its major application was
limited to prototyping. However, improvements in the technologys accuracy, speed and quality of materials used for
printing have prompted sectors such as automotive, aerospace, medical research and even space research to move
beyond its use only in R&D labs and incorporate it into their manufacturing strategy. The technology is already widely
used to make jewelry, personalized fashion items, dental accessories, hearing aids and prostheses. The technology is
particularly well suited to low-volume, short production runs, offering companies a flexible, cheap and quick substitute to
traditional mass production. The emergence of 3-D printing, therefore, is expected to bring more innovation in the US
product market.

Future risks

Competition from China

Although the US possesses the finest STI system in the world, emerging players such as China could present challenges
to its innovation system. Chinas R&D expenditure in absolute terms has grown at a rapid pace in recent years, which
has turned it into the second largest R&D performer in the world ahead of Japan since 2013. According to MarketLine,
the Chinese spending on R&D increased by around 290% during 200713 while the corresponding rise for the US was
around 29%. Although, the USs R&D expenditure amounted $469.53 billion in 2013, which is higher than Chinas R&D
expenditure of $190.96 billion, the growing pace of Chinese spending on R&D can overtake the US in the future. China
has also overtaken the US in the number of doctoral graduates it produces in science and engineering streams annually.

On an average, while China produces 27,200 science and engineering graduates annually (200911), the corresponding
figure for the US was 23,500 (200711), according to the OECD. Although China continues to be behind the US in the
quality of its scientific publications measured by the number of citations, the worlds second largest economy has started
to assimilate itself into the global STI scheme by engaging in international collaborations, which will eventually lead to
improvements. According to the OECD, China had 74,000 internationally collaborative publications in 2011, more than
eight times the figure recorded in 1998 (9,000); 22,000 of these 2011 collaborations were with US-based institutions
compared to just 2,000 in 1998.

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PESTLE Analysis

Figure 13: New doctorates in science and engineering (average annual count), 200711

30.0
Number of graduates

25.0
(thousand)

20.0
15.0
10.0
5.0
0.0

Source: OECD MARKETLINE

Chinas advancement in the global STI network could disturb some of the intrinsic advantages enjoyed by the US, which
could create a new node for STI. This could create challenges for the US system, especially given its reliance on highly
skilled foreign talent.

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PESTLE Analysis

Legal analysis

Overview

The US has a sound legal framework and an independent judiciary, which helps create a positive investment climate.
The country ranked higher in Index of Economic Freedom 2015 and enjoys high levels of labor freedom, business
freedom and trade freedom. As JOBS Act turned three in 2015, the Securities and Exchange Commission has made
significant progress towards the implementation of JOBS Act, which would encourage the setting up of new businesses
and give a fillip to job creation. However, the lack of uniformity in business laws across states creates compliance
challenges for businesses operating in multiple locations.

Table 7: Analysis of the US legal landscape

Current strengths Current challenges


High in economic freedom Inefficient taxation system
Activation of US FATCA

Future prospects Future risks


Full implementation of JOBS Act Multiplicity of business laws across states

Source: MarketLine MARKETLINE

Current strengths

High in Economic Freedom


th
United States was ranked as 12 freest economy, with a score of 76.2, by the 2015 Index of Economic Freedom
published by the Heritage Foundation and the Wall Street Journal. The country improved in six out of the 10 economic
freedoms including freedom from corruption, fiscal freedom, control of government spending, labor freedom, monetary
freedom and trade freedom. United States was well above the world average score of 60.4. The country ranks high in
labor freedom, business freedom and trade freedom.

Activation of US FATCA

The US government loses an estimated $100 billion in annual tax revenues due to offshore tax noncompliance. To tackle
this, the US government enacted the Foreign Account Tax Compliance Act (FATCA) as a part of its Hiring Incentives to
Restore Employment (HIRE) Act in 2010. The provisions of the law, which came into force on July 1, 2014, requires
foreign financial institutions (FFIs) to provide information about their US clients to the Internal Revenue Service (IRS). If
the FFIs do not agree to disclose information about their US clients, the institutions are required to withhold 30% from
any financial incomedividends, interest or other paymentsgenerated from their holdings in US financial assets. The
law also requires the US citizens to report assets worth more than $50,000 in overseas accounts to the IRS with their
annual tax returns, failing which a penalty of $10,00050,000 will be applied. While laws in certain countries do not allow
the disclosure of client information, the government has signed intergovernmental agreements designed to have local
governments collect information from domestic subsidiaries of FFIs and share it with the authorities. The US has
concluded 65 intergovernmental agreements and has signed agreements in substance with another 47 countries on
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PESTLE Analysis

this issue. The law is expected to boost federal revenues by $800m per year for the next 10 years.

Current challenges

Inefficient taxation system

The US has an inefficient taxation system, which has performed poorly with respect to equity, resulting in widening
income disparities. In the area of direct taxation, the government allows individuals to deduct mortgage interest from their
taxable income, which favors homeowners over renters. Such favoring of certain kinds of consumption sometimes results
in high-income earners paying an effective tax rate lower than middle-class earners. As far as indirect taxation is
concerned, the US has the highest statutory corporate tax rate in the developed world at 39.05% in 2013. Despite this, its
corporate tax revenue as proportion of GDP constitutes 2.29%, which is lower than most other wealthy countries.

Figure 14: Corporate tax rate and revenue in select OECD countries, 2013

9 45
8 40
7 35
6 30

Percentage
% of GDP

5 25
4 20
3 15
2 10
1 5
0 0
NOR LUX JPN KOR ISR DNK BEL ITA CHE CAN SWE FRA SVK GBR IRL FIN USA ISL ESP TUR DEU EST SVN

Corporate Tax Revenue Tax rate

Source: OECD MARKETLINE

Notable among the tax incentives is the preferential treatment given to certain extractive industries, such as the oil, gas,
coal and hard minerals, which receive special benefits worth billions of dollars through expensing of costs associated
with exploration and development and through usage of a percentage depletion allowance. The latter allows certain
extractive companies to deduct 522% of the earnings associated with extraction from their taxable income, depending
on the type of resource. According to November 2014 analysis by Congressional Budget Office, repealing these two
preferential treatments could add $36.7 billion to the federal government coffers during 201424.

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PESTLE Analysis

Figure 15: Change in federal government revenues due to repealing of tax Preferences for
extractive industries

5
4.5
4
3.5
3
$ billion

2.5
2
1.5
1
0.5
0
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

Disallow the use of the percentage depletion allowance


Repeal the expensing of exploration and development costs

Source: Congressional Budget Office MARKETLINE

Future prospects

Full implementation of JOBS Act

In April 2012, President Obama signed Jumpstart Our Business Startups Act (JOBS Act) into law, which eases securities
regulations that previously restricted fundraising by startup companies. It let companies for equity crowdfunding, which
enables investors to go online and buy a small stake in startups. The Securities and Exchange Commission (SEC) has
made significant progress towards the implementation of JOBS Act. In September 2013, small, private companies
seeking investments were allowed to advertise the sale of their equity on crowdfunding websites. In March 2015, SEC
allowed non-accredited investors (retail investor) to participate in private offerings which were earlier accessible to
certain class of investors classified as "accredited investors" (individuals with annual income of over $200,000 or net
worth of over $1m). The new rule allows companies to raise up to $50m a year subject to eligibility, disclosure and
reporting requirements, up from longstanding cap of $5m. Moreover, it provides investors with more investment choices.
This would encourage the setting up of new businesses and give a fillip to job creation.

Future risks

Multiplicity of business laws across states

Firms operating in the US have to adhere to a large number of federal and state regulations. The rules are not uniform
which makes it difficult for businesses to meet the requirements of the various states in which they may operate. There
are specific restrictions on FDI by individual state governments, and these must be taken into consideration before
deciding about investing in a particular region.

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PESTLE Analysis

Environmental analysis

Overview

The US's leading economic status is not reflected in its performance on environmental indicators. The country is
continuing to maintain its focus on increasing the efficiency of its environmental management and energy use while
ensuring economic benefits. Given its superpower status in the world economy, there is a need for it to be more
proactive in international environmental co-operation with a focus on climate protection, biodiversity and the use of toxic
chemicals.

Table 8: Analysis of the US environmental landscape

Current strengths Current challenges


Strong environmental policy framework and initiatives Poor performance on environmental indicators

Future prospects Future risks


Collaboration with China to address environmental challenges Unfriendly waste management practices

Source: MarketLine MARKETLINE

Current strengths

Strong environmental policy framework and initiatives

The US has a strong environmental policy and legislative framework, with well-established institutions at federal and
state levels. The Clean Air Act is one of the major government initiatives to improve air quality. There are different
statutes for water, air, waste management and the preservation of biodiversity, while separate agencies under federal
and state governments are entrusted with policy implementation. The US has taken the initiative to develop clean energy
technology and is forming international partnerships such as the Asia Pacific Partnership on Clean Development and
Climate. These steps will help in improving national and international environmental standards.

Current challenges

Poor performance on environmental indicators

The Environmental Performance Index (EPI) released by Yale University ranked the US 33rd in 2014 EPI Index, with a
score of 67.52. The EPI ranked 178 countries on nine performance indicators in Health Impacts, Air Quality, Water and
Sanitation, Water Resources, Agriculture, Forests, Fisheries, Bio-diversity and Habitat, and Climate and Energy. The US
performed poorly in various parameters such as Fisheries, Forests and Climate and Energy. The US ranking is behind
other advanced countries such as Switzerland (first), Germany (sixth), United Kingdom (12th) and Canada (24th).

Moreover, total energy CO2 emissions has increased from 5.36 billion metric tons in 2013 to 5.41 billion metric tons in
2014, according to US Energy Information Administration. This is above that of other high-income countries, and
emissions are currently increasing in both per capita and absolute terms. The US is a major contributor to the increase in
greenhouse gas emissions in spite of its well-developed environmental technology industry; these figures indicate the
lack of commitment to the environment and the lack of political will to enforce regulations.
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PESTLE Analysis

Future prospects

Collaboration with China to address environmental challenges

In 2008, the US and China established a 10 year co-operation framework for energy and the environment, with both
nations working on a five step action plan. The five initial targets being addressed under the framework are clean,
efficient, and safe electricity production and transmission; clean water; clean air; clean and efficient transportation; and
the preservation of forest and wetland ecosystems.

The two countries extended their environmental cooperation in July 2013 during the fifth Round of the USChina
Strategic and Economic Dialogue held in Washington. This time, US President Barack Obama and his Chinese
counterpart Xi Jinping agreed upon five initiatives to cut down GHG emissions. The US and China are two of the biggest
greenhouse gas (GHG) emitters in the world. The initiatives discussed by the two presidents include reduction of vehicle
emissions through the adoption of improved fuel efficiency standards for heavy-duty vehicles and emission control
technologies; implementation of large-scale carbon capture, utilization and storage (CCUS) projects to cut emissions
from coal combustion; construction of more energy-efficient buildings through the adoption of new financing models;
building of GHG data collection and management capacity for better monitoring and implementation; and the promotion
of smart grids. In addition, they also agreed to cut the production and consumption of powerful greenhouse gases such
as hydrofluorocarbons (HFCs).

In an attempt to address environmental issues through bilateral cooperation, the two countries have established a US
China Climate Change Working Group in April 2013, which brought relevant agencies and ministries together to pursue
low-carbon development. In November 2014, both President Obama and President Xi Jinping announced targets to cut
carbon dioxide emissions. The US would reduce CO2 emissions by 2628% from 2005 levels by 2025 and China would
stop increasing CO2 emissions from around 2030 and aims to increase the share of nonfossil fuels in primary energy
consumption to 20% by 2030. This joint announcement is likely to play a critical role in addressing climate change and
inject momentum into new global climate agreement, which is likely to be adopted in December 2015.
Future risks

Unfriendly waste management practices

The US has also come under scrutiny due to its harmful waste dumping practices. On a number of occasions, nuclear
and medical wastes have been dumped in the sea or on the shores of developing or developed nations. This practice
represents a global hazard, and particularly affects countries without the technology to deal with such waste. The US is
also among the few countries not to have ratified instruments regulating the trans-boundary disposal of nuclear waste
under the Basel Convention.

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Political Landscape

POLITICAL LANDSCAPE
Summary

The US freed itself from British colonial rule to become the longest surviving democratic nation in the world. The US
constitution defines the country as a federal republic with a division of power between the federal and state governments.
The president controls the executive branch of the federal government. Barack Obama of the Democratic Party is the
current president of the United States. He was sworn in as president of the US in January 2009 after he defeated John
McCain of the Republican Party in the presidential elections. Obama was re-elected to a second term after he defeated
Republican opponent Mitt Romney in the November 2012 presidential elections.

Evolution

Pre-1950s

The modern history of the US dates back to 1775, when 13 British colonies agreed to come together to free themselves
from colonial rule. On July 4, 1776, the declaration of independence was made, announcing the birth of a new nation. In
the aftermath of the proclamation of independence, heavy conflict between the colonies and their colonial rulers
continued until a peace treaty was signed in Paris in 1783. The Treaty of Paris acknowledged the independence,
freedom, and sovereignty of the 13 former American colonies, which are now states. At the same time, it also laid the
foundations of a modern democratic nation. The constitution was ratified in 1787, when the states agreed to a loose
federal structure. George Washington was sworn in as the first president of the US on April 30, 1789. In the years that
followed, the country was affected by civil wars and sectional conflict, as politicians went about the difficult task of
building a modern democracy. By the late 19th century, American society had stabilized and the process of
industrialization had begun. During World War I, the USs business interests were seriously affected. President Wilson
negotiated an end to the conflict based on his 14-point plan to achieve lasting peace, but this was not accepted by all of
the US states. In the post-war period, labor unrest and racial tension proliferated, yet despite these problems the US
enjoyed a period of real and broadly distributed prosperity for a few years during the 1920s. However, the economy soon
plunged into depression between 1929 and 1939. President Herbert Hoover began the process of rebuilding the
economy, but his efforts had little impact. He lost the 1932 presidential election to Franklin Roosevelt, who took some
bold measures and initiated an era of economic and political change. His New Deal listed many measures to lift
Americans out of the depression, a unifying factor for states that led to economic growth. However, this phase did not
last long, hampered by US involvement with the allied forces in World War II.

The US played a major role in global affairs in the years immediately after World War II, especially through its influence
in the newly formed United Nations (UN) and North Atlantic Treaty Organization (NATO). The most important political
and diplomatic challenge in the early post-war period was the Cold War, which grew out of longstanding disagreements
between the US and the Soviet Union.

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Political Landscape

Figure 19 gives a snapshot of the USs political evolution since independence:

Figure 16: The US key political events since 1940

194060 196173 197488 19892001 2001 onwards

In the World War II, the US aided an Nixon resigned in The US forces played a Following the
US played an active unsuccessful attempt 1974; Jimmy Carter of dominant role in war September 11, 2001
role; led the Allied by Cuban exiles to the Democratic Party against Iraq in 1991. attack on the World
forces to defeat invade Cuba in 1961. was elected president Trade Center, the US
Germany in 1941. in 1976. The NAFTA treaty was launched an attack
President Kennedy signed in 1992. against Taliban forces
Japan surrendered was assassinated in Carters popularity in Afghanistan.
following USs 1963; Lyndon Johnson had declined by 1980, Bill Clinton was elected
Attacks on Iraq
bombing on Hiroshima became the next following the 444 days president in 1992.
began in 2003,
and Nagasaki in 1945. president. long hostage crisis in
leading to the
the US embassy in Mid term elections of collapse of Saddam
The Cold War with the The US increased its Tehran. 1994 saw Republican Husseins regime.
Soviet Union began in military intervention in Party majority in both
1947; US initiated the Vietnam in 1964. The Republican houses of parliament. Barack Obama of the
policy of providing aid Ronald Reagan was Democratic Party was
to countries threatened Republican Party elected president in Clinton was re-elected sworn in as the 44th
by communist regime. candidate Richard 1980; he adopted tax- in 1996, amid president in January
Nixon was elected cutting policies which allegations of financial 2009.
Racial segregation in president in 1969. led to a large federal scandals and sexual
schools was made budget deficit. harassment case. Barack Obama was
unconstitutional in Public opposition to re-elected president
1954. Vietnam war gathered Reagan was re-elected Clinton was acquitted for second successive
momentum in 1969. in 1984. in Senate impeachment term after he defeated
Democratic Party trial in 1999. Mitt Romney in 2012.
candidate John F Richard Nixon was re- George Bush,
Kennedy was elected elected in the 1972 Reagans vice George W. Bush In the 2014 mid-term
president in 1960. elections; Vietnam president, was elected became the president in elections, the
Republican Party got
ceasefire agreement president in 1988. 2001 after a closely
majority in both
was signed in 1973. fought election with Al
houses.
Gore.

Source: MarketLine MARKETLINE

195090

During the Cold War era, the US's international political relations were based on combating the spread of communism.
Its relations with the Soviet Union were not cordial, as the two nations were drawn into indirect confrontations in Turkey,
North Korea, Iran and Afghanistan. In the mid-1960s, the US sent troops to defend South Vietnam against a communist
insurgency based in North Vietnam. The war was unsuccessful and made Americans wary of further foreign
entanglements. During this period, there was an improvement with respect to gender and racial equality, and capitalist
forces were involved in major economic and business decisions.

The liberal activism of the 1960s and 1970s was replaced by conservative policies in the 1980s, dominated by Ronald
Reagan, who was president during 198189. Reagan favored limited government involvement, a firm stance against
communism, and tax cuts to spur economic growth. The end of the Cold War and the collapse of the Soviet Union
marked his second term, and his vice president George Bush succeeded him.

19912014

Bill Clinton was elected as president in 1992 on the promise of youth and change, and completed two terms in office. His
policies were described as centrist, as he favored free trade. Clinton has been credited with immensely successful
economic policies, which gave the US the longest period of peacetime economic expansion in its history, including a

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Political Landscape

balanced budget and a reported federal surplus.

Clintons term in office was not an easy one, however. After two years of Democratic Party control under his leadership,
the Democratic Party lost control of both houses of Congress in the mid-term elections held in 1994. During Clinton's
second term, the Republican-controlled house voted to impeach him, but he was subsequently acquitted by the Senate
and completed his term in 2001.

After a controversial and bitterly fought contest against the incumbent vice president, Al Gore of the Democratic Party,
George W. Bush assumed the office of president in 2001. Bush promised reforms in education, the economy and social
security. However, the governments priorities changed after 9/11 with the announcement of the war on terror. The
countrys involvement in Afghanistan and Iraq had public approval initially, but many grew uncomfortable as the US
soldiers faced increasing casualties. Despite controversy over the war in Iraq and domestic issues, Bush won a second
term in office. The economy slowed during his administration.

On November 4, 2008, Congressional and gubernatorial elections took place. All 435 seats in the House of
Representatives and roughly one third of the 100 seats in the Senate were contested in this election. The Democratic
Party took control of both houses of the US Congress with a 256178 advantage in the House of Representatives and a
5641 advantage in the Senate. Barack Obama emerged as the presidential candidate of the Democratic Party after
winning a hard-fought battle against Hillary Clinton, the wife of former president Bill Clinton. Obama defeated John
McCain of the Republican Party in the presidential elections and was sworn in as president of the country in January
2009. However, the midterm elections in 2010 were a blow to Democrats as the Republicans captured the House of
Representatives amid rising public discontent over unemployment, high public debt and poor economic conditions.

Al-Qaeda leader Osama Bin Laden was killed by US special forces in Abbottabad, Pakistan in May 2011. In September
2011, anti-capitalist activists, protesting against corporate greed marched under the Occupy Wall Street movement in
various US cities, spawning similar protests in many other countries. The following year, Obama was re-elected
president. The Democrats also extended their majority in the Senate by two seats, finishing with a total tally of 53 seats
out of 100 after the 2012 Senate elections. However, in 2014 mid-term elections, the Republican Party got majority in
both houses: the House of Representatives and the Senate. In the Senate, Republicans have 54 seats out of 100 while
Democrats won 44 seats and two seats are held by independents. The Republicans increased their hold in the House of
Representatives by winning 13 seats, which takes their total tally to 247 seats out of 435 seats.

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Political Landscape

Structure and policies

Key political figures

Figure 17: The US key political figures

Barack Obama was sworn in as the 44th president of the US on 20 January, 2009. He is the f irst Af rican-American
to assume the nations highest of f ice and one of the youngest presidents of the country. Af ter high school, Obama
studied at Occidental College in Los Angeles f or two years. He then transf erred to Columbia University in New York,
graduating in 1983 with a degree in political science. Obama entered Harvard Law School in 1988. In February 1990,
he was elected as the f irst Af ricanAmerican editor of the Harvard Law Review. Obama graduated in 1991. Af ter law
school, Obama returned to Chicago to practice as a civil rights lawyer in Miner, Barnhill & Galland. He also taught at
the University of Chicago Law School. Obama became only the third Af rican-American to be elected to the U.S.
Senate since Reconstruction in November 2004. In February 2007, Obama made headlines when he announced his
candidacy f or the 2008 Democratic presidential nomination. He was locked in a tight battle with f ormer f irst lady,
Hillary Rodham Clinton until he became the nominee on June 3, 2008. On November 4th, 2008, Obama def eated
Republican presidential nominee John McCain f or the position of U.S. President. He was re-elected f or a second
term in November 2012 elections af ter def eating Republican nominee, Mitt Romney.

Joseph Robinette Biden, Jr. received a bachelor's degree f rom the University of Delaware in 1965 and a law
degree f rom Syracuse University in New York in 1968. Biden was elected to the U.S. Senate in 1972 at the age of
29. As a senator, Biden f ocused on f oreign relations, criminal justice, and drug policy. He has chaired the Senate's
Foreign Relations Committee more than once during the past decade. He also chaired the Judiciary Committee
during the contentious U.S. Supreme Court nominations of Robert Bork and Clarence Thomas. Biden unsuccessf ully
sought the Democratic presidential nomination in 1988 and 2008, both times dropping out early in the process.
Barack Obama selected Biden to be the Democratic Party nominee f or Vice President in the 2008 U.S. election. In
2012, he was re-elected f or a second term alongside Barack Obama.

Source: MarketLine MARKETLINE

Structure of government
The president is the head of government as well as the head of state. The legislative branch comprises a bicameral
parliament known as Congress. It consists of the House of Representatives (the lower house) and the Senate (the upper
house). A college of representatives, elected directly from each state, carries out the presidential election. In addition to
the federal government, there are 50 state governments and the government of the District of Columbia. Further down
the ladder are still smaller units, which govern counties, cities, towns, and villages.

Structure of legislature

Key political parties

The Democratic Party

The Democratic Party, one of the two major parties, is the oldest political party in the US and arguably in the world. It
was founded in 1792 by Thomas Jefferson and James Madison, and has placed itself to the left of the Republican Party
on most issues. Franklin D Roosevelt shaped the modern ideology that is pro-people and supportive of the poor.
Historically, the partys support has come from groups of farmers, workers, trade unions, and the religious and ethnic
minorities. However, when it comes to industry and economics, the party is opposed to the unregulated financial sector,
and favors progressive income taxes. In recent decades, the party has favored a free enterprise system with some
amount of government intervention. Its agenda includes promoting civil liberties and equal rights.

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Political Landscape

Bill Clinton of the Democratic Party was elected to the presidency in 1992 and 1996, but the party lost control of
Congress to the Republican Party in the 1994 elections. The Democratic Party regained majority control of Congress in
2006. In the congressional elections that took place in November 2008, the Democratic Party took control of both houses
of Congress with a 256178 advantage in the House of Representatives and a 5641 advantage in the Senate. The
Democratic Party lost its majority to the Republicans in the Senate in the mid-term elections that were held in 2014.

Barack Obama was sworn in as the 44th president of the country after he defeated the Republican Partys John McCain
in the November 2008 elections. He was re-elected once again in November 2012 presidential elections, where he was
pitched against Mitt Romney of the Republican Party.

The Republican Party

The Republican Party was founded in 1854. The party follows conservative policies in social and economic spheres. It
believes in a lesser role for the courts and judges in the Supreme Court, and wants to place greater limitations on federal
power and more powers in the hands of states. The Republican Party supports a strong pro-business platform, with its
ideology rooted in economic liberalism. In the 1980s, the party became more conservative than before and openly
criticized government intervention in business. It has always advocated strong national defense and supports
unilateralism in issues of national security.

In the 2000 elections, the party gained control of the presidency and both houses of Congress for the first time since
1954. George W. Bush, the previous president, was the 18th Republican to hold the position of the president of the US.
His term spanned two four-year terms from 200109. The Republicans had a majority in the Senate during 200206,
during which time they also held majority of seats in the House of Representatives. During 200610, the party was in
minority in both the houses of Congress. In 2010, the Republican Party benefited from public discontent over the
economic situation and regained a majority in the house after a span of four years. In 2014, the Republican Party gained
a majority in the Senate and now controls both the houses. The Republicans now hold 5444 majority in the Senate and
247188 majority in the House of Representatives.

Key policies

Economic

Austerity for five years has improved the public accounts and government spending is expected to spur growth in the
country. Fiscal consolidation forced by the Budget Control Act of 2011 and expiration of payroll tax cuts in FY2013 have
helped the US federal government in reducing its fiscal deficit from 9.8% of GDP in 2009 to 2.81% of GDP in 2014. This
improvement in federal government finances represents the steepest five-year fall in fiscal deficit since the
demilitarization after World War II. According to projections from Congressional Budget Office (CBO), a non-partisan
federal agency within the legislative branch of the US, the deficit is expected to fall to 2.7% of GDP in 2015 as the
strengthening economy boosts the federal governments revenues. Consequently, government spending is expected to
increase in the coming years especially at the local level. Local spending accounts for 60% of the total public outlay while
40% is accounted for by federal government, which is expected to spur growth in the country.

Social

For over 65 years, social security has been a dependable source of income for millions of Americans during their
retirement years, providing a basic safety net. Millions of workers pay into the social security system with the expectation
of receiving a benefit at retirement, as well as insurance for their family in the event of their death or disability. The
government also runs social insurance schemes such as Medicare and Medicaid to provide healthcare access to less-

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Political Landscape

privileged population.

The Obama administration signed the Patient Protection and Affordable Care Act in 2010, which dwells on the idea of
providing universal healthcare to American residents by increasing the affordability of health insurance and increasing its
coverage. Under the Patient Protection and Affordable Care Act, Medicaid will be available to everyone with incomes of
up to 133% of the poverty level; however, a Supreme Court ruling has given the state governments the right to opt out of
this Medicaid expansion scheme as many states have eligibility requirements below those levels. Both Medicare and
Medicaid also face considerable financial challenges in the long run.

Foreign

US foreign trade and global economic policies have changed direction dramatically. In its early days, the government and
business concentrated primarily on developing the domestic economy. Since World War II, however, the US has sought
to reduce trade barriers and co-ordinate with the world economic system. The country took a lead role in establishing the
UN, becoming a permanent member of the Security Council and host to the organization's headquarters. The US enjoys
a close relationship with the UK and has strong ties with Australia, Japan, Israel and other fellow NATO members. It also
works closely with its neighbors through various organizations and agreements. The US-supported trade liberalization
was instrumental in the creation of the General Agreement on Tariffs and Trade (GATT). The government supports free
trade policy and legislation and signed the North American Free Trade Agreement (NAFTA) in 1994 with Canada and
Mexico. Other major free trade agreements are with Australia, Chile, Israel, Singapore, South Korea and the Dominican
Republic. The Central American Free Trade Agreement (DRCAFTA) includes six Central American countries. However,
the former Bush administration faced criticism for its protectionist policies during the war on terror.

During the former Bush era, one of the primary components of the US foreign policy was war on terror, which also
brought his administration a lot of criticism. In late 2001, US forces led a NATO invasion of Afghanistan and removed the
Taliban government, and in late 2002, the Bush administration began to press for regime change in Iraq. The US invaded
Iraq in 2003 and ousted President Saddam Hussein. The Bush doctrine argued for a policy of pre-emptive war in cases
where the US or its allies are threatened by terrorists or by rogue states engaged in the production of weapons of mass
destruction. The wars started during the Bush term also involved efforts to include other nations in military or diplomatic
actions; however, in the absence of coalition partners the country was willing to take unilateral military action against
perceived threats.

In 2008, Barack Obama campaigned to end the wars. In 2012, President Obama brought all American troops home from
Iraq. In order to continue their co-operation in security, governance and economy after the pullout of the NATO forces,
President Obama and Afghan President Hamid Karzai signed the Strategic Partnership agreement in May 2012. In
March 2015, President Obama announced that 9,800 US troops would stay in Afghanistan as trainers and advisors to
Afghan National Security Forces (ANSF) until 2016. This US assistance to Afghanistan is expected to help the latter to
fight terrorism.

Performance

Governance indicators

The World Bank report on governance uses voice and accountability, political stability and absence of violence,
government effectiveness, regulatory quality, rule of law, and control of corruption as indicators for 215 countries and
territories over 19962013. Daniel Kaufmann of the Brookings Institution, Massimo Mastruzzi of the World Bank Institute
and Aart Kraay of the World Bank Development Economics Research Group carried out the study. For any country, a

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Political Landscape

percentile rank of zero corresponds to the lowest possible score and a percentile rank of 100 corresponds to the highest
possible score.

The US scored a percentile rank of 83.89 in voice and accountability in 2013. Although high, it was still behind its
neighbor Canada and a few European countries such as the UK. Voice and accountability measures the extent to which
a country's citizens are able to participate in selecting their government, as well as freedom of expression, freedom of
association, and freedom of the media. Canada had a 95.26 percentile rank and the UK had a 92.42 percentile rank in
2013. The principles of democracy are deep-rooted in the US, and elections are considered to be fair and transparent.
However, the involvement of business interest groups in the election process through the provision of soft funds makes
the system of policymaking biased.

On political stability and absence of violence, the US had a ranking of 65.88 in 2013. This measures perceptions of the
likelihood that the government will be destabilized or overthrown by unconstitutional or violent means, including national
conflict and terrorism. Canada had a comparatively high rank of 83.89, but the UK also fared poorly, ranking in the 63.03
percentile.

Most of the developed nations perform well in terms of government effectiveness, which measures the quality of public
and civil services, the degree of governmental independence from political pressures, the quality of policy formulation
and implementation, and the credibility of the government's commitment to such policies. The US had a strong ranking of
90.91 in this parameter in 2013. However, Canada and the UK had percentile ranks of 97.13 and 89.95, respectively.

The US has one of the best legal frameworks in the world. It ranked in the 86.60 percentile on regulatory quality in 2013,
which measures the ability of the government to formulate and implement sound policies and regulations that permit and
promote private sector development. Members of both parties have committed themselves to fair and transparent
governance. For years, the US has been considered one of the best places to conduct business. However, it is still
placed lower than Canada (95.22) and the UK (96.17).

The US had a 90.52 percentile rank on the rule of law in 2013, which indicates that the country has a highly effective
judicial system. Rule of law measures the extent to which agents have confidence in and abide by the rules of society,
and in particular the quality of contract enforcement, the police, and the courts, as well as the likelihood of crime and
violence. Canada ranked in the 94.79 percentile and the UK had a 92.89 percentile rank, both higher than the US.
The US had a percentile rank of 85.17 on control of corruption in 2013. Control of corruption measures the extent to
which elites and private interests exercise public power for private gain, including both petty and grand forms of
corruption, as well as capture of the state. Canada and the UK had higher percentile rankings of 95.22 and 93.30,
respectively.

Outlook

The US is negotiating a large-scale free trade agreement, known as Trans Pacific Partnership (TPP), with 11 other
nations. This agreement is an expanded version of an existing free-trade agreement between Brunei, Chile, New
Zealand and Singapore. The other countries negotiating the agreement are Japan, Australia, Canada, Malaysia, Mexico,
Peru and Vietnam. Other countries such as China and South Korea have also shown a keen interest in joining
agreement talks. The TPP, which is poised to become the worlds largest free trade agreement, not only intends to
address tariff and non-tariff barriers between negotiating countries and promote trade among member nations, but also
contains provisions on intellectual property laws. The TPP between the US and 11 other countries would have a total
GDP of nearly $21 trillion, which constitutes 30% of the world GDP. Furthermore, this trading bloc would account for $4.4
trillion in exports of goods and services, which constitutes a fifth of total world exports. If Japan and South Korea too

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Political Landscape

become part of the TPP, it would constitute a mega trading bloc that would account for 40% of worlds GDP and nearly a
third of world exports.

In 2014, the Republican Party gained a majority in the Senate and now controls both the houses. The Republicans in
both the houses are expected to block key White House legislations, most notably, immigration reform. However,
President Obama is expected to use his executive power to drive policy change in areas where he does not need
congressional approval.

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Economic Landscape

ECONOMIC LANDSCAPE
Summary

The US is the largest economy in the world, with GDP of around $14.8 trillion and per capita GDP of $46,409 (at 2005
prices) in 2014. The services sector is the most dominant sector of the US economy and it accounts for 77.94% of the
US GDP. The US was also the world's the largest manufacturing economy until 2010, when China surpassed it as the
leading manufacturing economy in the world. The country grew at 2.42% in 2014, mainly supported by private
consumption. Inflation in the economy remained subdued throughout the year because of the weakness in the global
economy and fall in energy prices. The employment situation in the country improved during the previous year. The
number of unemployed people declined to 8.48 million in 2014 from 9.89 million in 2013, according to MarketLine.

Evolution

Pre-1940s

The rapid industrialization of the US began during the late 19th century, and by the beginning of the 20th century, it was
one of the fastest-growing and most technologically advanced countries in the world. The country witnessed ample
infrastructural development due to the discovery of coal, iron ore, copper, and silver deposits, and a number of steel and
cement factories were set up. The average annual income of non-farm workers grew by 75% during 1865-1900. The
economy continued to do well until 1918 following which civil unrest in the country in 1919 and a recession in 192021
led to a short-term period of slow growth.

The US economy continued to grow steadily until the Great Depression, which led to mass closure of companies.
Unemployment rose from 3% of the workforce in 1929 to 25% in 1933. The government's involvement in the economy
increased most significantly during the New Deal of the 1930s. This represented the economic measures initiated by
President Franklin D Roosevelt to alleviate the economic crisis, creating closer ties between business and government.
During this period, the foundations of the modern economic and financial systems were laid, while regulating agencies
such as the Securities and Exchange Commission (SEC) and the Federal Deposit Insurance Corporation (FDIC) were
created. The social security system also took effect during this period.
194077

During World War II, there was increased intervention of government in business, as most manufacturing facilities were
used for the production of war equipment. As consumer goods became increasingly scarce, the government put price
control mechanisms in place due to fears of inflation. The export of vast quantities of supplies to the Allied nations during
the war period led to a rapid increase in the US GDP that almost doubled between 1939 and 1944 while the
unemployment rate fell to 2% in 1945 from 14% in 1939 as 40% of the GDP was related to the war effort. It is argued that
it was World War II and not the New Deal, which caused the US economy to flourish.

The period from the end of World War II to the early 1970s is regarded as a golden era of American capitalism. During
this period, consumer demand fueled economic growth, providing a fillip to the manufacturing sector, with new industries
such as aviation and electronics growing rapidly. During this period, the middle class expanded, as did economic output
and productivity. There was also a housing boom. The fundamental feature of this growth was that it was distributed
evenly across the economic classes, which is attributed to the strength of the labor unions and the migration of low
income farm workers into towns and cities offering better job prospectsa process largely completed by 1960. The
creation of the Council of Economic Advisors by the Congress in 1946 to promote high employment, high profits and low

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Economic Landscape

inflation was also a significant feature of this economic boom. President Eisenhower and President Nixon followed
Keynesian economics through accelerating public works programs, easing credit, and reducing taxes.

The period of high growth and stable inflation was followed by a period of slow growth and stagflation (high inflation and
high unemployment) in the early- to mid-1970s. The Bretton Woods system collapsed in 1971, which meant that dollar
was no longer backed by gold and became a floating currency. Furthermore, tensions in the Middle East resulted in
higher oil prices and affected industrialization. The Keynesian policies of fiscal stimulus could have worsened the
situation as it would have increased the prices further. Therefore, Keynesianism had to give way to monetarism, which
proposed tight money supply to control inflation.
19772014

The late 1970s saw deregulation gain momentum as the government deregulated commercial aviation in 1978 and
transportation in 1980. Savings and loans associations and banks were partially deregulated in 1982. To recover from
the recession caused by the oil crisis, President Carter instituted a large fiscal stimulus. Due to this, a steep rise in
inflation was seen beginning in late 1978, reaching double-digits after the 1979 energy crisis. In order to fight inflation,
Paul Volcker, the Federal Reserve Chairman, raised interest rates that caused a sharp recession in the first six months
of 1980. President Carters failure to combat stagflation resulted in President Reagan taking office in 1980. He introduced
expansive fiscal policies and cut federal tax rates by 25% in 1981 while keeping money supply tight. This brought
economic stability, which continued during the reign of George H.W. Bush. The economy rebounded from recession in
the early years of the decade as consumer demand strengthened, but there were huge budget and trade deficits. With
the fall of the Soviet Union and Eastern European communism in the late 1980s, trade opportunities expanded greatly for
the US.

The 1990s brought happy times again for American citizens as the GDP increased by 40.6% during 19912000. The
early 2000s saw a housing market boom and the economy prospered despite mild aberrations. The bursting of the dot
com bubble slowed the economy in 2000 and 2001. The economy started to recover and grew by 2.5% in the latter half
of 2003 due to increased federal expenditure, military buildup and tax cuts. The economy had fully recovered by 2004
when GDP growth touched 3.8%. The economy suffered temporary disruption in growth in 2005 due to Hurricane Katrina
and Hurricane Rita; however, it continued its growth with a 3.4% growth rate in 2005. GDP growth averaged 2.6% during
200507.

In 2008, the US faced a severe sub-prime mortgage crisis, investment-banking failures, which pushed the economy into
a recession and real GDP contracted by 0.3%. Real GDP contracted further by 2.8% in 2009. The massive fiscal
stimulus provided by the government took the country out of recession, and the US economy recovered in 2010 to grow
at 2.53% and growth rate averaged 2.17% during 201013. In 2014, the economy was spurred by strong job creation,
accommodative financial conditions and low oil prices, which helped it to register a growth rate of 2.42% in 2014.

Structure and policies

Financial system

Financial authorities and regulators

Federal Reserve

The Federal Reserve is the central bank of the United States. The primary motivation for creating the Federal Reserve
System was to address banking panics. Banking in United States is regulated at both federal and state levels.

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The Federal Reserve's duties fall into four general areas:

Conducting the nation's monetary policy by influencing the monetary and credit conditions in the economy in
pursuit of maximum employment, stable prices, and moderate long-term interest rates;

supervising and regulating banking institutions to ensure the safety and soundness of the nation's banking and
financial system and to protect the credit rights of consumers;

maintaining the stability of the financial system and containing systemic risk that may arise in financial markets;

providing financial services to depository institutions, the US government, and foreign official institutions,
including playing a major role in operating the nation's payments system.

Securities and Exchange Commission

The Securities and Exchange Commission (SEC) is a federal agency that holds primary responsibility for enforcing
federal securities laws, regulating the securities industry, the American stock and options exchanges, and other
electronic securities markets, protecting investors from corporate abuses, and facilitating capital formation in the United
States. The SEC works with criminal law enforcement agencies to prosecute individuals and companies alike for
offenses. The SEC also works closely with many other institutions, including Congress, other federal departments and
agencies, self-regulatory organizations (such as the stock exchanges), state securities regulators, and various private
sector organizations.

Federal Deposit Insurance Corporation

The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the federal government, and protects
the interests of consumers by insuring their deposits. It was created in 1933 in response to the thousands of bank
failures that occurred in the 1920s and early 1930s. The FDIC directly examines and supervises about 4,500 banks and
savings banks, more than half the institutions in the banking system. It is the primary federal regulator of state-chartered
banks that do not join the Federal Reserve. In addition, the FDIC is the backup supervisor for the remaining insured
banks and thrift institutions. However, it insures only deposits, and does not insure securities, mutual funds or similar
types of investments that banks and thrift institutions may offer.

Banking

Banking in the US is regulated at both the federal and state level, and banking institutions are required to adhere to both
sets of regulations. While the US has a large number of regional and community banks, the sector is highly fragmented
and is dominated by a few large banks like JP Morgan Chase, Bank of America, Wells Fargo and Citigroup. The assets
of these banks constitute more than 60% of the total banking assets in the country.

Numerous financial intermediaries provide payment, clearing, and settlement services, with over 20,000 deposit-taking
institutions also offering some type of payment service. Privately operated payment systems range from the localized
interbank associations that clear checks for their members or operate ATM or point of sale networks and the nationwide
credit and debit card networks, to a large value electronic funds transfer system. The central bank also plays an
important role in providing a wide range of interbank payment services. In addition, innovation and competition have led
to the use of new instruments and systems that rely increasingly on electronic payment mechanisms. The US was
seriously affected by the subprime mortgage and liquidity crises that played out in 2007 and 2008, with some big banks
finding themselves in need of rescue and a number of smaller banks disappearing entirely.

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Dodd-Frank Act

President Obama signed the Dodd-Frank act in 2010, which marked a new era in the regulation of the financial sector.
Senate banking committee Chairman Christopher Dodd and House of Representatives financial services committee
Chairman Barney Frank led the efforts to pass the bill in Congress. The law was signed with an aim to change the
financial regulatory system of the US and marked the creation of three new agencies: the Financial Stability Oversight
Council, the Office of Financial Research and the Bureau of Consumer Financial Protection. The first two agencies are
under the purview of the Treasury, while the third one is an independent agency. The Financial Stability Oversight
Council is tasked with identification and monitoring of financial stress arising from both financial and non-financial sector
with the power to respond to threats that can prove detrimental to the financial stability of the US. The Office of Financial
Research was created with an intention to improve the quality of financial system data and analysis available to
policymakers. The Bureau of Consumer Financial Protection is tasked with the regulation of credit cards and consumer
loans such as the subprime mortgages that helped inflate the real estate bubble that was partly behind the financial
crisis. The Volcker Rule, a part of the bill, prohibits banks from engaging in proprietary trading with depositors money.
The Volcker Rule also limits the growth of big banks and restricts them from participating in hedge funds and private
equity.

Key policies during subprime mortgage crisis

The 2008 subprime mortgage crisis went on to become a global economic crisis. The pandemic economic downturn saw
investment bank failures, falling home prices and tight credit, with these factors triggering a recession by mid-2008. To
help stabilize financial markets, Congress established a $700 billion Troubled Asset Relief Program (TARP) in October
2008. The government used some of these funds to purchase equity in US banks and other industrial corporations. In
January 2009, Congress passed a bill that provided an additional $787 billion in fiscal stimulus (two thirds for additional
spending and one third for tax cuts) to create jobs and help the economy recover. In December 2010, the US Congress
passed $858 billion bill to extend the Bush-era tax cuts by two years and extend some provisions for the stimulus
provided in 2009 in order to bolster the recovering economy. As a result of these measures, the US economy recovered
in 2010 to grow at 2.5% after contracting by 2.8% in 2009.

Performance

GDP and growth rate

The US is the largest economy in the world, with a real GDP at 2005 prices of $14.8 trillion in 2014. After the economic
boom of the 1990s, growth slowed down after 2000. The events of 9/11 further added to the economic slowdown.
Despite this, the economy managed average growth of 2.8% during 200006. In the second half of 2006, however, the
US economy started decelerating below the long-term growth trend. The economic slump continued in 2007, mainly due
to the slowdown in the housing market and the subprime crisis. The economy registered growth of 1.8% during 2007, but
slipped into recession in 2008, with real GDP contracting by 0.3%. The economic recession intensified in 2009, with the
economy contracting by 2.8%.

The massive fiscal stimulus provided by the government took the country out of recession, and the US economy
recovered in 2010 to grow at 2.53%. Growth came down to 1.6% in 2011 and remained modest at 2.32% in 2012.
Factors such as household deleveraging, fiscal consolidation, a weak external environment, legacy effects of the global
financial crisis and temporary effects of Hurricane Sandy were some of the reasons for the slowdown in 2011 and 2012.
Federal spending cuts and higher taxes affected economic growth in 2013 as it came down to 2.22%. In 2014, the

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economy was spurred by strong job creation, accommodative financial conditions and low oil price, which helped it to
register a growth rate of 2.42% in 2014. According to MarketLine, the US economy is expected to post a higher growth
rate of 3.22% in 2015.

Figure 18: GDP and GDP growth rate in the US, 200919f

18.00 4.00

16.00 3.00

14.00
2.00

Growth rate (%)


12.00
1.00
$ trillion

10.00
0.00
8.00
-1.00
6.00

-2.00
4.00

2.00 -3.00

0.00 -4.00
2009 2010 2011 2012 2013 2014 2015f 2016f 2017f 2018f 2019f
Year

GDP Real GDP growth rate

Source: Country Statistics, MarketLine MARKETLINE

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GDP composition by sector

In 2014, the services sector was the largest contributor to GDP in the economy (77.94%), followed by industry (20.35%)
and agriculture (1.71%). For the greater part of the 20th century, the US was the world's top manufacturer and provider
of services.

Figure 19: GDP composition by sector in the US, 2014

Agriculture,
1.71%
Industry,
20.35%

Services,
77.94%
Source: Country Statistics, MarketLine MARKETLINE

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Economic Landscape

Agriculture

Agricultural production increased from $160.27 billion in 2010 to $299.27 billion in 2014. Although agriculture only
accounts for a small share of GDP, farmers remain economically and politically powerful forces. The major agricultural
export commodities include dairy products and corn. Next in importance are grains (such as wheat) and oilseeds (such
as soybeans). The dairy industry is dominated by poultry, eggs, and milk, produced by a small number of large farms.
The activities on these farms are carried out on a commercial basis. According to MarketLine estimates, agriculture
output is forecasted to reach $316.06 billion in 2015.

Figure 20: Agricultural output of the US, 201015f

350.00 40.00

300.00 35.00

30.00
250.00

growth rate (%)


25.00
200.00
$ billion

20.00
150.00
15.00

100.00
10.00

50.00 5.00

0.00 0.00
2010 2011 2012 2013 2014 2015f
Year

Agriculture output Growth rate

Source: Country Statistics, MarketLine MARKETLINE

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Industry

In 2014, the US industrial sector accounted for 20.35% of the nations GDP. Industrial output increased from $2.97 trillion
in 2010 to $3.57 trillion in 2014. The US was the world's largest manufacturing country until 2010, when it was surpassed
by China. Nevertheless, successive governments have played an important role in industry, having advanced US
business goals in international trade within their policies. The federal government aims to negotiate lower tariffs and
remove other barriers to US imports while also protecting US companies from unfair foreign competition. Furthermore,
state governments promote the export of goods produced by industries in their respective regions. Industrial growth
averaged 4.66% during 201014 and industrial output is expected to grow by 4.9% in 2015, according to MarketLine.

Figure 21: Industrial output of the US, 201015f

4.00 7.00

3.50 6.00

3.00
5.00

2.50
4.00
$ trillion

growth rate (%)


2.00
3.00
1.50

2.00
1.00

0.50 1.00

0.00 0.00
2010 2011 2012 2013 2014 2015f
Year

Industry output Growth rate

Source: Country Statistics, MarketLine MARKETLINE

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Services

The US services sector is the largest in the world contributing $13.65 trillion to the annual GDP in 2014. In 2010, the
corresponding figure was $11.82 trillion. Services sector is also the largest sector in the economy in terms of both output
and employment. In 2014, it contributed 77.94% to the economic output of the country and employed 80.73% of the total
population in 2014. Services sector growth averaged 3.61% during 201014 and services output is expected to grow by
4.74% in 2015, according to MarketLine.

Figure 22: Service output of the US, 201015f

16.00 5.00

4.50
14.00
4.00
12.00
3.50
10.00
3.00
$ trillion

8.00 2.50

growth rate (%)


2.00
6.00
1.50
4.00
1.00
2.00
0.50

0.00 0.00
2010 2011 2012 2013 2014 2015f
Year

Services output Growth rate

Source: Country Statistics, MarketLine MARKETLINE

Fiscal situation

Fiscal consolidation forced by the Budget Control Act of 2011 and expiration of payroll tax cuts have helped the US
federal government in reducing its fiscal deficit from 9.8% of GDP in 2009 to 2.81% of GDP in 2014. This improvement in
federal government finances represents the steepest five-year fall in fiscal deficit since the demilitarization after World
War II. The CBO expects the budget deficit to fall to 2.69% of GDP in 2015 and further to 2.31% of GDP in 2017, after
which, pressures of an ageing population, rising healthcare costs, an expansion of federal subsidies for health insurance,
growing interest payments on federal debt and flat revenues are expected to cause an increase in the deficit.

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Exports and imports

According to MarketLine, exports from the US increased to reach $2.32 trillion in 2014, up from $1.82 trillion in 2010.
Imports also increased to $2.67 trillion in 2014, up from $2.34 trillion in 2010. Total goods exports stood at $1.63 trillion in
2014 while total goods imports as $2.24 trillion. In 2014, the country's most important goods export partners were
Canada (19.22%), Mexico (14.8%), China (7.64%) and Japan (4.13%). In the same year, the most important import
partners of the US were China (19.9%), Canada (14.75%), Mexico (12.54%), Japan (5.71%) and Germany (5.25%).

Figure 23: External trade of the US, 201014

6.00

4.93 5.00 5.00


5.00 4.75

4.16
4.00
2.75 2.76
2.34 2.67 2.67
3.00
$ trillion

2.24 2.32
2.08 2.18
1.82
2.00

1.00

0.00
2010 2011 2012 2013 2014
Year

Exports Imports Total trade

Source: Country Statistics, MarketLine MARKETLINE

Current account

The US has had a negative current account balance since the 1990s. According to data from Bureau of Economic
Analysis (BEA), the US current account deficit (CAD) fell from a peak of $806.72 billion in 2006 to $380.79 billion in 2009
before fluctuating around $450 billion during 201012. Off late, the US CAD has started to show a declining trend due to
the shale gas boom in the country, reducing the countrys dependence on foreign oil. The deficit declined to $400.25
billion in 2013 from $460.74 billion in 2012. In 2014, the deficit increased marginally to $410.63 billion. As a percentage
of GDP, the US CAD in 2014 amounted to 2.4% of GDP.

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Economic Landscape

International investment position

Credit rating

In August 2011, Standard & Poor's (S&P) downgraded the US to AA+ with a negative outlook with concerns over the
debt-ceiling crisis of 2011. This was the first time the US lost its AAA rating. In June 2013, the ratings agency revised its
outlook on the USs long term sovereign credit rating from negative to stable and cited the resolution of fiscal cliff and
the willingness and ability of the Federal Reserve to support sustainable economic growth and to attenuate major
economic or financial shocks as the main reasons for the change in outlook. As of June 2015, it affirmed its AA+ long
term and A-1+ short term sovereign rating with a stable outlook.

Key monetary indicators

Interest rate

The Federal Reserve follows a dual mandate of maintaining maximum employment at stable prices. It has held
benchmark overnight rates in a 00.25% range, since December 16, 2008, which are expected to change in 2015,
although it depends upon the positive economic data.

Inflation

The US inflation rate averaged 1.64% from 200914. In 2008, the inflation rate rose from 2.85% in 2007 to 3.82% as the
housing boom put pressure on both oil and food prices. The crash in housing markets and the subsequent financial crisis
had a deep impact on private consumptionthe major driver of the US economy as a weak economy put pressure on
manufacturers and retailers to reduce prices. As a result, the US recorded deflation of 0.34% in 2009. The country
recorded inflation of 1.64% in 2010, which went up to 3.16% in 2011, as oil prices rebounded from their lows in late 2008
and 2009, and the domestic economy showed signs of recovery. Slower growth in gas and food prices kept inflation in
check for most of 2012, averaging 2.09% for the year. In 2013 and 2014, inflation fell to 1.5% and 1.8%, respectively, as
oil prices tumbled.

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Economic Landscape

Figure 24: Consumer price index and consumer price index-based inflation in the US,
200919f

160.00 3.50

140.00 3.00

2.50
120.00

2.00
100.00

Percentage (%)
Consumer Price Index

1.50
80.00
1.00
60.00
0.50

40.00
0.00

20.00 -0.50

0.00 -1.00
2009 2010 2011 2012 2013 2014 2015f 2016f 2017f 2018f 2019f

Consumer price index Inflation

Source: Country Statistics, MarketLine MARKETLINE

Employment

The unemployment rate was 9.28% in 2009 and 9.62% in 2010, the highest rates of unemployment in the country since
1983. However, as economic conditions improved, unemployment rate continued to decline and came down to 6.23% in
2014. Around 8.48 million Americans were unemployed in 2014, down from 9.89 million a year earlier.

Through most of the country's history, the labor force has grown steadily, sustaining economic expansion. Moreover,
immigrants have been a major source of labor, tending to increase in number during times of low unemployment when
demand for workers goes up. However, the labor force participation has reduced substantially as reflected by the fact
that 62.9% of the population was part of civilian labor force in May 2015 compared to pre-crisis levels of 66.1% in August
2008.

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Economic Landscape

Figure 25: Unemployment rate in the US, 200919f

14 12.00

12
10.00

10
Number of unemployed (million)

8.00

Percentage (%)
6.00
6

4.00
4

2.00
2

0 0.00
2009 2010 2011 2012 2013 2014 2015f 2016f 2017f 2018f 2019f
Year
Total unemployment Rate of unemployment (%)

Source: Country Statistics, MarketLine MARKETLINE

Outlook

The US economy grew at 2.42% as the economy was spurred by strong job creation, accommodative financial
conditions and fall in energy prices in 2014. Furthermore, 2014 witnessed the fastest pace of job creation since 1999 and
fastest decline in unemployment rate since 1983 and the steepest fall in fiscal deficit since the demilitarization after World
War II. According to projections from Congressional Budget Office (CBO), a non-partisan federal agency within the
legislative branch of the US, the deficit is expected to further fall to 2.7% of GDP in 2015 as the strengthening economy
boosts the federal governments revenues. Consequently, government spending is expected to increase in the coming
years especially at the local level. Local spending accounts for 60% of the total public outlay while 40% is accounted for
by federal government, which is expected to spur growth in the country.

In 2015, the US economy is forecasted to grow at a faster rate of 3.22%, driven by government spending and consumer
spending as households, which are nearing the end of a deleveraging cycle, spend more on goods and services rather
than servicing of their debts. Lower unemployment rate, which fell to 5.5% in May 2015, will also help spur consumption
demand throughout the year. However, slow growth of European economies and stronger dollar could act as a
dampener to growth.

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Social Landscape

SOCIAL LANDSCAPE
Summary

The American population enjoys a high standard of living, which is reflected in the high ranking (fifth among 187
countries) secured by the country in the 2013 Human Development Index published by the United Nations Development
Programme (UNDP). The country has a vast proportion of highly educated population, as around 43% of the adult
population in the 2564 age group have attained tertiary education, as of 2012, a rate exceeded only by Canada (53%),
Israel (46%), Japan (47%) and the Russian Federation (53%) for this age group.

The US has an extensive social security system for pensioners, the disabled and the unemployed, and it runs social
insurance schemes such as Medicare and Medicaid to provide healthcare access to the older and less-privileged
population. However, the US healthcare system is the most expensive in the world and its performance in terms of
resource availability and healthcare outcomes are relatively mediocre, when compared to other countries in the
developed world. Rising poverty and inequality are causes of concern, which need to be addressed through a hike in
minimum wage and reduction of regional imbalances in terms of finding job opportunities. The government also needs to
undertake concrete reforms to manage its long-term Social Security and Medicare costs, as its population continues to
age.

Evolution

In the early 20th century, the federal government played a minimal role with respect to social security measures. There
was an increase in industrial output as well as the availability of farmland. Social welfare was believed to be the
responsibility of the local government. Social security measures as they are understood today were introduced during the
1930s following the great economic depression. Although most were temporary relief measures, the social security
system remained in place. The program is funded by deductions from the salaries of working people, and ensures that
retired persons receive a modest monthly income while also providing workers with unemployment insurance, disability
insurance, and other forms of assistance.
There were significant developments in the 1960s, when assistance programs such as Medicaid and Medicare were
established. Housing for lower income groups was provided by federal funds, and in later years, given the increasing
number of people below the poverty line, special programs were introduced for the aid of poor families. These families
received welfare payments allowing them to obtain such necessities as food, clothing, and shelter. Social security
payments and Medicare constitute a large proportion of government expenditure, which was accounted for 41% of
federal expenditures in 2013.

Structure and policies

Demographic composition

Age and gender composition

According to MarketLine, around 66.1% of the US population was in the 1564 age group; 14.5% was in the 65 and
above group; and the remaining 19.4% belonged to the 014 age group in 2014. Females comprise 50.74% of the total
population, while males account for 49.26%. The countrys median age for the total population was 38 years and the
gender ratio was 97 males per 100 females in 2014.

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Social Landscape

Table 9: Mid-year population by age (as % of total population, by gender), 2014

Age Female Male


04 6.3 6.7
59 6.2 6.7
1014 6.2 6.7
1519 6.3 6.8
2024 6.9 7.5
2529 6.7 7.1
3034 6.6 6.9
3539 6.1 6.3
4044 6.4 6.5
4549 6.5 6.6
5054 7.1 7.0
5559 6.8 6.6
6064 6.0 5.6
6569 5.0 4.6
7074 3.7 3.2
7579 2.7 2.2
80+ 4.6 2.8

Source: Country Statistics, MarketLine MARKETLINE

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Social Landscape

Religious composition

Christianity is the major religion of the US population as of 2007, with Protestants constituting 51.3%, Roman Catholics
(23.9%), other or unspecified (8.8%) [includes Mormons (1.7%), other Christians (1.6%), Jews constitute (1.7%),
Buddhists (0.7%) and Muslims (0.6%)], unaffiliated (12.1%) and those professing no belief at 4%.

Figure 26: Religious composition in the US, 2007

Unaffiliated, 12.1%

Other or
Unspecified, 8.8%

None, 4.0% Protestant, 51.3%

Roman Catholic,
23.9%

Source: CIA The World Factbook MARKETLINE

Note: Percentages do not add up to 100 due to rounding errors

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Social Landscape

Ethnic composition

According to the CIA The World Factbook, as of 2007, the countrys ethnic groups include whites (constituting 79.96%
of the population), followed by blacks (12.85%), Asians (4.43%), and others (2.76%) as of 2007.

Figure 27: Ethnic groups in the US, 2007

Others, 2.76%
Asian, 4.43%

Black, 12.85%

White, 79.96%

Source: CIA The World Factbook MARKETLINE

Healthcare

Healthcare services

Healthcare facilities and insurance in the US are mainly provided by the private sector. In 2013, 64.2% of people were
covered by private health insurance. The majority of private insurance is through employer-sponsored insurance plans,
which covered 53.9% of the population in 2013. The government contribution mainly encompasses the provision of
healthcare access to the older and less-privileged population through social insurance schemes such as Medicare and
Medicaid. While Medicare guarantees healthcare access to the elderly population (aged 65 and above), and younger
people with disabilities, Medicaid provides health insurance to persons of all ages whose income and resources are
insufficient to pay for healthcare. In 2013, Medicare provided healthcare insurance to 15.6% of the population, while
Medicaid covered 17.3% of the population. Around 13.4% of Americans did not have any health insurance plans in 2013.

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Social Landscape

Education

System of education

The US educational system is decentralized, with control and funding coming from federal, state and local governments.
The government has provided for a mandatory and universal system of education at primary and secondary levels. The
No Child Left behind Act of 2002, a piece of federal legislation, calls for an annual assessment of progress and greater
accountability. In particular, it requires states to establish clear content standards and thresholds for adequate yearly
progress against which performance can be assessed. Moreover, the act requires states to implement curriculum-based
external exit exams.

The educational options are public schools, private schools and home schooling. The schooling years of kindergarten to
12th grade are divided into elementary school, junior high school (middle school), and senior high school. Post-
secondary education, also known as college or university, is governed separately from the elementary and high school
system. After graduation, students may move to higher education, which provides specialized learning.

Performance

Healthcare

The US has the most expensive healthcare system in the world with an average individual spending $8,745 annually on
health in 2012. The figure is 42% higher than per capita spending of Norway ($6,140), which has the second most
expensive healthcare system in the world, and almost 150% higher than the average of 34 OECD countries ($3,484).

Despite higher spending, the US performance in terms of resource availability and healthcare outcomes are relatively
mediocre in the developed world. In 2011, there were 2.5 physicians per 1000 population in the US compared to OECD
average of 3.2. The number of hospitals beds per person was 3.1 in 2010, also lower than OECD average of 4.8.
Furthermore, the countrys modest life expectancy gains have not matched those of the other developed countries. In
2013, life expectancy at 79.4 years was lower than OECD average of 80.2 years (2012 data). Since 2000, life
expectancy in the US increased by two years; however, these gains were lower than the three years increase in life
expectancy achieved by most other OECD countries.

The US has the highest number and proportion of uninsured individuals among OECD countries. In 2013, around 42
million or 13.4% of the people were uninsured. However, the proportion of people without healthcare coverage reduced
from 15.7% in 2011, which shows that the government is trying to make healthcare more effective by implementing
reforms. The reforms adopted in 2010 will be implemented on a piecemeal basis until the beginning of the next decade.

Education

According to MarketLine, the US spent more than $1.14 trillion on education in 2013. The government accounted for
70% of this expenditure, while the private sector share accounted for the remaining 30%. During 200713, average
public education expenditure amounted to $772.73 billion that constitutes an average of 5.06% of GDP during the same
period.

The US higher education system is one of the best in the world. According to the OECD report Education at a Glance
(2014), around 43% of the adult population in the 2564 age group is qualified up to the tertiary level in the US (OECD
average is 33%), with only Canada (53%), Israel (46%), Japan (47%) and the Russian Federation (53%) having higher
tertiary attainment levels than the US in this age group. However, tertiary education among the younger population has
not evolved as only 44% of population in the age-group 2534 completed tertiary education in 2012 (OECD average is

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Social Landscape

40%), placing the US in the 12th place among 36 OECD and partner countries.

Figure 28: Public expenditure on education in the US, 200713

800.00 5.60

5.40
780.00

5.20
760.00

5.00

percentage (%)
740.00
$ billion

4.80

720.00
4.60

700.00
4.40

680.00 4.20
2007 2008 2009 2010 2011 2012 2013

Year
Public education expenditure Public education expenditure as % of GDP

Source: Country Statistics, MarketLine MARKETLINE

Income distribution

Standard of living

The 200708 financial crisis erased the prosperity of the US median family. According to the US Census Bureau, the real
median household income fell to $51,939 in 2013 from $56,436 in 2007, a decline of 8.66% during 200713. Low
minimum wage and regional imbalances in job opportunities have also raised poverty rates across the country. Around
45.3 million people lived below the official poverty line in 2013 and the official poverty rate stood at 14.5%, which is 2%
higher than 12.5% recorded in 2007, according to the Census Bureau. High long-term unemployment and a weakness in
job quality have further aggravated this problem.

The crisis also led to a marked contraction in the median wealth of a US household, which was recorded at $56,335 in
2013, almost 36% lower than 2003 figure of $87,992. In contrast, the richest 5% saw their net worth increase by almost
12% during 200313. The median wealth of the households in the top 5% grew from $1.19 million in 2003 to $1.36
million in 2013. This proves that economic recovery since 2010 has had no positive effect whatsoever in raising living
standards of the bottom half of the population while it has positively benefited the upper rung of the population. This
phenomenon raises concerns about increasing income and wealth distribution inequality in the US.

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Social Landscape

Outlook

The United Nations Human Development Index ranked the US in the fifth place in 2013, below Norway, Australia,
Switzerland and Netherlands. As a result of Affordable Care Act 2010, more than 16 million uninsured people have
gained health insurance coverage.

However, for the US to maintain its position, it needs to carry out reforms in healthcare, social security and education. In
2012, Medicare and Social Security alone cost the government around 38% of its expenditure or 8.7% of GDP.
According to Social Security and Medicare Boards of Trustees, the cost of both programs will substantially exceed GDP
growth through the mid-2030s due to rapid ageing of the population. This is due to a significant portion of the baby-
boomer generation entering retirement and the lower-birth-rate generations entering the workforce. If the government
continues to spend at this pace, the social security trust funds will be depleted by 2033 and Medicare funds will be
depleted by 2026. After the depletion of both funds, the continuing income tax will be able to pay for only 77% of social
security benefits and 87% of Medicare benefits, respectively.

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Technological Landscape

TECHNOLOGICAL LANDSCAPE
Summary

Technology and innovation are the cornerstones of the US economy. Besides maintaining its economic supremacy, the
nation has also guarded its status as a leader in the field of technological advancement. Continued investment in
technology is likely to see this superiority continue. According to MarketLine, the US spent 2.8% of its GDP on research
and development (R&D) expenditure in 2013, demonstrating its commitment to innovation. However, this is less than that
of other developed nations such as Japan, which spends nearly 3.4% of its GDP on R&D. The number of patents
received by US from the United States Patent and Trademark Office (USPTO) went up from 95,038 in 2009 to 1,58,713
in 2014. On a per million capita basis, the country received 497.7 patents from the USPTO which was higher than that of
Japan (441.2), Republic of Korea (360.2), Switzerland (316.3) and Germany (216.9).

Evolution

In terms of industry and technology, the US made the greatest progress between the end of the 18th century and the
early 20th century. The years following the US civil war (186165), often termed the second industrialization, laid the
groundwork for technological advancements. The late 19th and early 20th centuries witnessed new discoveries and
inventions, such as the discovery of oil and the invention of the typewriter, the telephone, the phonograph, and the
electric light, while automobiles and airplanes changed the way people commuted. With increasing demand, new
production techniques were devised to make the country more technology-intensive, while the manufacturing industry
matured in the post-World War II era.

The next wave of advancements came during the late 1980s and 1990s, with the development of IT contributing to the
unprecedented economic growth of this period. Since the mid-1990s, the IT sector has been vital to the growth of the US
economy and continues to drive it. This is partly because IT has applications in diverse sectors such as healthcare,
transportation, banking and financial services, retail, telecommunications, and media. It has furthered the growth of
small- and medium-sized enterprises, which invest a quarter of their total capital expenditure on computers and
communications equipment; this is comparable to the investment undertaken by large firms.
At the beginning of the 21st century, biotechnology was internationally recognized for its potential in human and animal
health and related areas. In 2002, the Department of Commerces Bureau of Industry and Security initiated the first
comprehensive government assessment of the development and adoption of biotechnology in the industry.

Structure and policies

Intellectual property

The US Patent and Trademark Office (USPTO) grants patent and trademark protection to inventors and businesses for
their inventions and intellectual property rights. In 1982, the Court of Appeals of the Federal Circuit was established, and
it has nationwide jurisdiction in areas such as patents and trademarks. Decisions of the Court of Appeals of the Federal
Circuit can only be superseded by the Supreme Court by a change in law.

The intellectual property laws in the US have been amended considerably in the last three decades. There were a
number of disputes related to patents with regards to genetically engineered bacteria, software and business methods,
and financial services products during the 1980s and 1990s. The associated court orders enhanced the patentability of
products belonging to these categories. The global Trade-Related Aspects of the Intellectual Property agreement of 1994

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Technological Landscape

led to a change in the length of a patents term, from 17 to 20 years from the filing date of patent application, with some
important exceptions related to pharmaceuticals. The American Inventors Protection Act also brought a few changes to
the patent and trademark system in the US. In 2011, the enactment of Leahy-Smith Act in September 2011 brought the
US patent system in alignment with the patent systems used in the rest of the world, which give patents on a first to file
basis. Earlier, the US was the only country that followed a first to invent system. The number of patents received by US
from the United States Patent and Trademark Office (USPTO) went up from 95,038 in 2009 to 1,58,713 in 2014. On a
per million capita basis, the country received 497.7 patents from the USPTO which was higher than that of Japan
(441.2), Republic of Korea (360.2), Switzerland (316.3) and Germany (216.9).

Table 10: Patents granted by the US Patent and Trademark Office per million population,
200914

Year United States Republic of Korea Germany Japan Switzerland


2009 309.8 194.5 126.5 297.3 186.8
2010 391.7 253.1 166.8 366.8 240
2011 389.2 266 158.9 377.6 234.5
2012 427.5 283.3 184.7 413.9 253.6
2013 466.6 313.5 204.4 425.5 303.1
2014 497.7 360.2 216.9 441.2 316.3

Source: USPTO data and MarketLine Analysis MARKETLINE

R&D

The National Science Foundation is the primary support agency for funding research in the physical sciences, through a
competitive and peer-reviewed process. Nanotechnology, advanced networking and IT, physics, chemistry, materials
science, mathematics, and engineering have been identified as the focus areas of research. The Department of Energys
Office of Science supports funding for grants and infrastructure in research related to economically significant
innovations. Finally, the Department of Commerces National Institute of Standards and Technology (NIST) primarily
works for research and standards development to improve manufacturing capabilities and construct newer laboratories.

The presidents FY2016 budget has maintained the country's commitment to basic research, particularly in areas that
promote knowledge and technologies. It continued its support for R&D initiatives by NIST, the National Science
Foundation, and the Department of Energys Office of Science. The budget includes funding of $215m to launch a
precision medicine initiative, which will result in better health outcomes and better treatment of diseases and $31.3
billion has been granted to support biomedical research at National Institute of Health (NIH). Overall, the budget provides
$146 billion for R&D, a 5.5% increase from fiscal year 2015 level.

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Technological Landscape

Performance

R&D

R&D expenditure

The US is one of the most technologically advanced nations and leads the world in most technological indicators. The
USs leadership position is because it is home to one third of the worlds scientists and engineers, and it accounts for one
third of global R&D expenditure. The countrys R&D expenditure as a percentage of GDP was 2.8% of GDP that
constitutes $469.53 billion in 2013. On an average, R&D expenditure increased by 2.76% during 200713.

Figure 29: Expenditure on R&D in the US, 200713

500.00 2.85

450.00
2.80
400.00

350.00 2.75

300.00
2.70

percentage (%)
250.00
$ billion

2.65
200.00

150.00 2.60

100.00
2.55
50.00

0.00 2.50
2007 2008 2009 2010 2011 2012 2013

Year
R&D investment R&D expenditure as % of GDP

Source: Country Statistics, MarketLine MARKETLINE

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Technological Landscape

ICT

Since 2004, the telecommunications sector in the US has had more mobile telephone lines than fixed network lines.
According to MarketLine, the country had a mobile penetration rate of 95.19 per 100 people compared to fixed-line
penetration rate of 41.69 per 100 people in 2014. Moreover, around 84.64% of the population had access to the internet
in 2013 compared to just 75.39% in 2007.

Figure 30: Internet users in the US, 200913

300.00 90.00

80.00
250.00
70.00
Internet users in Million

200.00 60.00

Percentage (%)
50.00
150.00
40.00

100.00 30.00

20.00
50.00
10.00

0.00 0.00
2009 2010 2011 2012 2013
Year
Number of users Percentage of population

Source: Country Statistics, MarketLine MARKETLINE

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Technological Landscape

Outlook

For decades, the US has been able to maintain its leadership position with respect to innovation and investment in R&D.
Increasing R&D expenditure from the corporate sector indicates the innovativeness of the private sector, but the
government's declining share is a matter of concern. Moreover, the US has to prepare for increasing competition from
emerging nations such as China, which are making successful forays into technology-intensive industries. This is a
cause for serious concern for the US, as it has maintained its pre-eminence in the world partly due to its R&D strength.

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Legal Landscape

LEGAL LANDSCAPE
Summary

The US legal system was originally derived from English law. The country follows a federal legal system, with individual
state laws and federal laws. The supreme law of the US is its constitution. Regulatory reforms have been followed in a
broad range of industries, resulting in increased competition in the economy. Moreover, the regulatory reform that began
in the 1970s accelerated over the course of the 1980s, resulting in partial deregulation of many sectors. This led to an
increased reliance on competition to improve efficiency. Although open competition is followed in most sectors, there are
a few sectors of the economy from which competition policy and law are completely excluded due to their sensitive
nature.

Evolution

Prior to the adoption of the constitution, the US was governed by the articles of confederation. Under the articles, almost
all functions of the national government were vested in a single-chamber legislature called Congress and there was no
separation of executive and legislative powers. Following ratification of the constitution in 1788, the Judiciary Act of 1789
laid the foundations for the federal judicial system. The act set up a judicial system composed of a Supreme Court,
consisting of a chief justice and five associate justices; three circuit courts, each comprising two justices of the Supreme
Court and a district judge; and 13 district courts, each presided over by one district judge. As provided for by the act,
Congress created two sets of lower courts.

In the initial years, federal-state relations dominated the Supreme Court's rulings, and the federal government was
favored at the expense of state governments. Moreover, economic regulations came to dominate the scene with the
advent of capitalism, as there were an increasing number of national and state laws aimed at monitoring business
activities. Since 1937, the Supreme Court has focused on civil liberties, in particular the constitutional guarantees of
freedom of expression and freedom of religion.

Structure and policies

Judicial system

Structure of the system

There are three levels of courts in the US: federal, state, and local. Some legal problems are resolved entirely in state
courts, whereas others are handled entirely in federal courts, and there are occasions when both of these courts are
involved in a case. The federal Supreme Court deals with matters pertaining to the federal government, disputes
between states, and interpretation of the US constitution.

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Legal Landscape

Figure 31: The US court system

United States
Supreme Court

Customs and patents


Court of claims Circuit courts of appeal(11) Direct Appeals
Appeal court

US tax Courts and District courts with District courts with local
administrative agencies federal jurisdiction only (89) and federal jurisdiction (3)

Source: MarketLine MARKETLINE

Tax regulations

Business tax

The US is one of the very few countries in the world, which taxes domestic corporations on worldwide income; profits of
foreign subsidiaries are usually not taxed unless they are repatriated as dividends or fall under a US anti-deferral regime.
Foreign corporations are subject to tax on income from their US business operations.
All levels of governmentsfederal, state and localimpose business tax. At the federal level, corporate income tax, the
alternative minimum tax and branch profit tax are levied. A corporation with a taxable income equal to or greater than
$18,333,333 per annum is liable to pay a flat tax of 35% on taxable income and 15% in case of income below the above
amount. Alternatively, a 20% alternative minimum tax (AMT) is imposed on corporations to the extent income computed
under AMT exceeds regular taxable income.

Personal income tax

Individual income at the federal level is taxed at seven progressive rates ranging from 1039.6%. An individual may also
be subject to an alternative minimum tax (AMT) if his/her tax tentative liability exceeds the regular income tax liability. It is
imposed on taxable excess at the rate of 26% or 28%. In addition to income tax, a portion of income is also deducted as
payroll tax. Social security taxes, which comprise Old Age, Survivors, and Disability Insurance (OASDI) and Medicare,
are borne equally by the employer and the employee. It is the responsibility of the employer to pay the employees
portion to the government. OASDI is imposed on the first $117,000 of each employees wages for 2014 at a combined
rate of 12.4% (6.2% paid by the employee and 6.2% by the employer). A Medicare tax of 2.9% of total wage, equally
shared by the employee and the employer is also imposed.

Excise tax

Businesses are required to pay excise tax if they are involved in the manufacture or sale of products, or receive
payments for certain services. In addition, quarterly federal excise tax returns consist of several broad categories,

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Legal Landscape

including environmental taxes, communication and air transportation taxes, fuel taxes, tax on the first retail sale of heavy
trucks, trailers, and tractors, manufacturers taxes on the sale or use of a variety of different articles.

Investment regulations

An investor can set up a business enterprise in the US as a sole proprietorship, a partnership, a corporation or a limited
liability company. Foreign investment is subject to the same rules as domestic capital. No prior approval is needed from
the federal government, although a few states have specific investment regulations. Foreign investment in banking,
mining, defense contracting, certain energy-related industries, fishing, shipping, communications, and aviation is
restricted. The government also restricts foreign acquisitions that may impair national security. The purchase of real
estate is unrestricted, but the purchase of agricultural land by foreign nationals or companies must be reported to the
government. The US governments investment in research and development also provides a suitable environment for
such practices, and the country sustains a strong regime of intellectual property rights protection and enforcement.
Flexible labor market regulations enhance productivity growth and employment opportunities. The non-salary cost of
employing a worker is low, and dismissing a redundant employee is not cumbersome.

Trade regulations

The US is a supporter of free trade and has entered into free trade agreements with 20 countries. The countrys trade
regulations are in line with international practices.

Goods entering the US are subject to customs duty, except those exempt by law. The duty on goods varies
according to their categorization.

The FDA releases the specifications for foods, drugs, medicines, and cosmetics, which must be followed by
exporters. All other products must comply with the regulations of the Federal Trade Commission.

Performance

Effectiveness of the legal system

According to the World Banks Doing Business 2015 report, the US ranked seventh out of 189 countries with respect to
ease of doing business. A high ranking indicates a favorable legal environment for business, and suggests that a
business can be formed and operated with relative ease. The US has followed the rule of law in all matters including
business for many years now. US economic policies are generally pro-business, and the country has a very well
developed financial regulatory system, with financial markets that are open to competition. It also has an independent,
effective and efficient judicial system. Although businesses in the US can be operated with ease due to minimal
government intervention, one of the major dampeners for business is the high tax rates and the differential federal rates
of taxes.

Outlook

The US government enforced the Foreign Account Tax Compliance Act (FATCA) in mid-2014 to tackle the issue of
offshore tax noncompliance, which will also boost federal revenues in the long run. Furthermore, the US banking
regulators have tightened the financial sector by increasing the capital banks must hold as a percentage of total assets
(also known as leverage ratio). According to April 2014 guidelines from banking regulators, bank holding companies with
more than $700 billion in consolidated total assets or more than $10 trillion in assets under custody (covered BHCs) and
their insured depository institution (IDI) subsidiaries will have to maintain a leverage ratio of 5% by 2018. FDIC-insured

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bank subsidiaries for all these BHCs will have to maintain a leverage ratio of 6%.

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Environmental Landscape

ENVIRONMENTAL LANDSCAPE
Summary

The Environmental Protection Agency (EPA) is the leading federal government agency, with a mandate to protect human
health and the environment. Each state also has its own regulating agency. Since the 1960s, the US government has
recognized protection of the environment as an important agenda, first drafting the Clean Air Act in 1963. Although the
performance of the country has improved in terms of toxic and greenhouse gas emissions, it has remained an
underperformer compared to leading industrial countries.

Evolution

Prior to the 1960s, environmental issues did not attract major attention from either the public or the government. The
Clean Air Act of 1963 was the first significant government policy that linked air pollution to public health. The act was
subsequently amended in 1970, 1977 and 1990 to improve its scope.

Under the Clean Air Act, the EPA has focused on key air pollutants that have a significant impact on public health and
the environment, such as ozone, carbon monoxide, nitrogen dioxide, sulfur dioxide and lead. Besides the Clean Air Act,
other environmental programs that have had a substantial impact on public health include:

The removal of lead from gasoline, adopted by the EPA in the late 1970s.

The acid rain program, enacted in 1990 to reduce sulfur dioxide emissions from power plants.

The Clean Air Interstate Rule, adopted by the EPA in 2005 to further reduce pollutants.

The Non-Road Diesel Rule, adopted by the EPA in 2004 to reduce particulate matter and nitrogen oxide waste
from construction, farming, and other non-road equipment.

The heavy duty highway vehicle and diesel sulfur rule, adopted by the EPA in 2000 to reduce particulate matter
and nitrogen oxide waste from diesel trucks, buses, and other on-road vehicles.

Structure and policies

Environmental regulations

The creation of the Council for Environmental Quality in 1969 and the EPA in 1970 were the two main initiatives from the
US to counter the degradation of the environment.

The Clean Air Act of 1970 requires the EPA to establish National Ambient Air Quality Standards, which the country
should strive to achieve. In 1997, the EPA promulgated tighter standards for two pollutants: ozone and particulate matter.
Pollution control measures include the sulfur dioxide trading system, embodied in the Acid Rain program, which has
been operating since 1992. The sulfur dioxide trading scheme was provided for in the 1990 amendments to the Clean Air
Act. There are also legislations in place that require industries to report the release of listed chemicals, whether
accidental or otherwise, as well as information on off-site transfers for disposal. Such information is recorded in the Toxic
Release Inventory. Therefore, it becomes easy for concerned members of the public to ensure general adherence to the
norms and take legal action against violations.

The government has also initiated steps to control greenhouse gas emissions, which has reduced consumption of
hydrocarbon fuels. Since increasing taxation tends to be particularly difficult politically in the US, the tendency may be to

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Environmental Landscape

seek to improve fuel economy by subsidizing research into more efficient engines. However, without direct incentives to
reduce fuel consumption, most of these measures will fail to achieve the desired results.

Performance

Environmental impact

Since the 1970s, the US has been trying to improve its performance in terms of environmental indicators. However, with
rapid industrialization and increasing dependence on fossil fuels, the environment took a back seat in the US government
policies. For years, the US has had the dubious distinction of being the worlds largest polluter before China overtook it in
2007. The Yale Universitys 2014 Environmental Performance Index ranked the US at the 33rd position out of 178
countries.

According to US Energy Information Administration, total energy CO2 emissions have increased from 5.36 billion metric
tons in 2013 to 5.41 billion metric tons in 2014, although CO2 emissions fell by 9.76% during 200714. In November
2014, President Obama announced the target to cut carbon dioxide emissions by 2628% in 2025 compared to 2005
level.

Figure 32: Carbon dioxide emissions in the US, 200714

6.20 6.00

6.00 4.00

5.80 2.00

percentage (%)
metric tons (billion)

5.60 0.00

5.40 -2.00

5.20 -4.00

5.00 -6.00

4.80 -8.00
2007 2008 2009 2010 2011 2012 2013 2014
Year

Volume Growth rate

Source: U.S. Energy Information Administration MARKETLINE

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Environmental Landscape

Outlook

The EPA has declared carbon dioxide and other greenhouse gases to be a health risk, acknowledging that these will
aggravate climate change, worsen air quality, and generate heat waves. This marks a significant change in the position
of the US in terms of environmental policy, suggesting that a new approach might soon be taken that could impact
climate change regulation. In November 2014, President Obama announced the target to cut carbon dioxide emissions
by 2628% from 2005 levels by 2025, boosting reliance on renewable sources of energy. These efforts are expected to
improve energy efficiency and lead to the technological development of low-carbon initiatives.

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Appendix

APPENDIX
Ask the analyst

MarketLines Country Analysis Practice consists of a team of economists, analysts, and researchers, all with expertise
in their given fields. For any questions or comments about this report you can contact the author directly at
reachus@marketline.com

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