Attack On Export Financing Ignores Key Facts
A surprising fight has broken out between the people who operate airliners and the people who manufacture them over the role the U.S. Export-Import Bank plays in financing foreign purchases of U.S. planes. The Ex-Im Bank, as it is widely known, is the principle export credit agency of the federal government. Like every other industrialized country, the United States helps its companies to line up loans and other credit facilities for foreign sales when private credit markets are not willing to absorb risks at reasonable rates. Most Ex-Im Bank assistance is aimed at U.S. small businesses, particularly companies seeking to export to marginal buyers with credit problems. But it also helps finance the sale of airliners to overseas operators, and therein lie the roots of the present controversy.
Some U.S. airlines believe that by guaranteeing the loans that foreign operators and aircraft leasing organizations obtain to buy U.S. commercial transports, Ex-Im Bank is inadvertently subsidizing those carriers in their competition with U.S. operators on international routes. The U.S. carriers argue that when Ex-Im Bank provides guarantees to creditors, they are willing to extend loans at much lower rates to foreign competitors than would be available in the absence of such guarantees. U.S. operators cannot obtain the same kinds of guarantees from the federal government, because Ex-Im Bank only facilitates exports and the sale of U.S.-built planes to U.S.-based carriers are domestic transactions. The main trade association for U.S. carriers also makes a series of additional charges about the supposed market-distorting effects of Ex-Im Bank credit activities, saying they contribute to overcapacity and put taxpayer funds at risk.
Most of these charges don't make much sense. Foreign carriers don't buy unneeded aircraft just because they can get good rates on loans. They buy aircraft to meet rising demand for air travel. And Ex-Im Bank doesn't put taxpayer money at risk because its credit activities are self-sustaining. In fact, it has turned over billions of dollars in profits from those activities to the Treasury. More broadly, the United States must be able to match the export credit offerings of other countries, otherwise its manufacturers will be placed at a structural disadvantage with Asian and European competitors in seeking to sell goods in developing countries (developing countries typically have a harder time getting credit at good rates).
U.S. airlines may have a reasonable point in arguing that government guarantees are extended too freely in situations where private credit markets are willing to finance exports. However, that should be a subject for negotiation with other countries. If the U.S. were to unilaterally curb its export credit programs without eliciting similar concessions from other countries, the nation's export performance would be severely impaired. With the U.S. currently running a trade deficit of about a billion dollars per day in manufactured goods, one thing it doesn't need is further impediments to overseas sales. Aerospace is one of the few manufacturing industries in the U.S. making a strong positive contribution to the trade balance, and it is in the nation's interest to see that continue.