In a perfect world, every federal agency would operate like the U.S. Export-Import Bank. The bank sustains hundreds of thousands of domestic jobs, bolsters the competitiveness of manufacturing companies large and small, levels the playing field in trade so that market forces can function efficiently, and even generates a profit from the fees it charges users (a billion dollars last year). It doesn’t use a cent of taxpayer money and it doesn’t compete with the private sector. The default rate on its loans to exporters and their customers is less than 1%, which compares favorably with the loss rate for most commercial banks.
Not surprisingly, periodic reauthorizations of the bank by Congress were a routine matter for the first 75 years of its existence. Legislators on both sides of the aisle agreed it performed a useful, necessary function, and so they approved its continued operation by lopsided margins. But that changed in 2010 when the Tea Party came to town with a mission to shrink government. Few of the newly-elected members knew much about trade, and they tended to rely on right-wing think tanks for policy guidance because establishment media and research outfits were thought to be dominated by liberals. End result: dozens of legislators decided Ex-Im had to go, even though they knew next to nothing about it.
Several big companies like Delta Air Lines have tried to exploit this development to serve narrow corporate agendas, but at base it is driven by free-market ideology. Once you realize that, it is easy to understand how legislators might be misled about the role Ex-Im plays, because the global trading system is nobody’s idea of a classic market. It is heavily politicized by countries such as China that pursue protectionist policies at the expense of other nations. But the Export-Import Bank is a friend of market forces; if it did not exist, U.S. exporters would be at the mercy of state-owned or influenced competitors around the world, and they would rapidly lose market share. Here are a few charges frequently leveled at the bank that are flat-out wrong.
Trade subsidies. Critics allege that Ex-Im subsidies are a form of “corporate welfare.” Wrong. There are no Ex-Im subsidies. Users of the bank’s financing facilities pay fees that cover all of its costs of operations, and under prevailing international agreements, those fees set the cost of Ex-Im credit at market levels. The main reason Ex-Im exists is to facilitate U.S. exports to overseas buyers who cannot obtain financing from market sources, like airlines in Africa. If Ex-Im really were handing out subsidies through its loan programs, it would be using taxpayer money and private lenders would be complaining about the competition. In fact, Ex-Im makes a profit each year and private lenders have no problem with its activities.
Market forces. Critics contend that Ex-Im interferes with the functioning of market forces in international trade. The precise opposite is true. Ex-Im frequently intervenes to level the playing field for U.S. exporters when state-owned or state-influenced companies in other countries are given unfair export subsidies by their home governments. For instance, China sought to win a competition in Pakistan for locomotives by offering concessionary financing that Islamabad could not obtain in the open market; Ex-Im countered that predatory behavior, enabling General Electric to win the locomotive contract. Rather than undermining market forces, Ex-Im assured they would function and Pakistan’s decision could be based on the merits of the products.
Credit risks. Critics charge that Ex-Im loans and loan guarantees expose the federal government to substantial credit risk. In reality, the default rate on Ex-Im financing arrangements has averaged less than 2% since it was established 80 years ago, and in recent years it has been barely 1%. That’s a much lower risk profile than many private-sector lenders have seen, and Ex-Im maintains a $4 billion reserve as a hedge against losses. The bank carefully balances its loan portfolio to assure credit is not overly concentrated in particular countries or regions. There is almost no risk associated with financing the export of U.S.-built jetliners, because if buyers default on loans the planes can simply be repossessed and sold to recoup lost funds.
Foreign advantage. Critics complain that because Ex-Im financing is available to foreign buyers of U.S. goods but not domestic buyers, foreigners get an unfair advantage in competing with the items they have bought. For instance, Delta Air Lines says helping foreign carriers to buy U.S. jetliners undercuts its ability to compete on international routes. However, if Delta has a good credit rating then it should encounter no difficulty obtaining equivalent financing from commercial lenders. Cutting off Ex-Im credit to foreign carriers would lead them to buy jetliners made in other countries, since every big exporting nation has an agency like Ex-Im. The resulting U.S. job losses would dwarf any adverse impacts from current Ex-Im programs.
Ex-Im Bank has been a boon to U.S. companies and workers for generations. It is one of the most efficient agencies in Washington, and it works hard to reach out to small business. It does not contribute to the budget deficit and even its critics have been known to tap Ex-Im financing. With other federal agencies far more deserving of scrutiny, Ex-Im should be left alone to continue helping U.S. exporters reduce the trade deficit. Rising exports have been a big contributor to the recent economic recovery.
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