Just when it looked like the rest of the world was beginning to wise up to China’s subsidies-driven trade strategy, the Club for Growth has appeared on the scene with a recipe for keeping Beijing’s mercantilist miracle in high gear. The Club wants America to unilaterally disarm its own exporters by convincing members of Congress to block reauthorization of the Export-Import Bank, the official export credit agency of the federal government. Ex-Im Bank, as it is called, was established during the depths of the Great Depression to provide financing to U.S. exporters when no market sources of credit were available. It continued to carry out that role in the most recent economic downturn, financing $40 billion in exports during 2011 that supported nearly 300,000 U.S. jobs.
But the Club for Growth said in a January 31 press release that “market forces should dictate trade flows, not bureaucrats and politicians.” It wants Congress to shut down the venerable agency and force U.S. exporters to seek financing from private-sector sources. Apparently nobody has told Club members that every other major industrialized power has an export credit agency, and that some countries like China extend credit at much higher rates than Ex-Im Bank does. Relative to the size of China’s economy, the volume of state-supported financing Beijing provides to local exporters is over ten times bigger than America’s comparatively modest effort. A single well-connected Chinese telecom company, Huawei, has received as much financial support from Beijing’s state-run export agencies as Ex-Im extends to all U.S. exporters combined in a typical year. That enabled Huawei to beat American companies for a huge contract in Brazil, notwithstanding the fact that much of the Chinese technology may have been stolen from U.S. telecom giant Cisco.
The Club for Growth cites commercial transports as an example of how Ex-Im Bank distorts trade flows. It says, “the Bank provided financing for foreign airlines to buy American aircrafts [sic], thus allowing those companies to better compete against American airlines.” What it doesn’t mention is that European governments provide similar financial support to their own manufacturers of commercial transports, and they aren’t about to abandon the field just because Washington has decided to unilaterally disarm. So if the Club has its way, Boeing — which sells most of its airliners overseas — will probably cease to be the nation’s biggest exporter and many thousands of jobs will disappear in places like Seattle and Charleston.
This situation is reminiscent of when Ronald Reagan decided during his first year as president to accept an Office of Management and Budget recommendation to phase out construction subsidies for oceangoing commercial vessels. Unfortunately, he failed to secure support from other shipbuilding nations to phase out their own subsidies, and as a result the U.S. industry collapsed when U.S. subsidies were abolished. Today, nobody in America builds commercial ships for use in overseas trade, even though America is the third largest exporter in the world. Other U.S. industries will suffer a similar fate if Congress heeds the recommendations of the Club for Growth. There is good reason to negotiate limits on the use of export credit with other nations, but proposing to eliminate America’s export credit agency unilaterally is dangerously naive.
America’s exporters need Ex-Im Bank to remain competitive in an unforgiving global economy. The bank’s activities cost taxpayers nothing because expenses are covered by fees imposed on users. In fact, the bank has sent over $800 million annually in recent years to the Treasury in fees that it collected but did not need to administer its programs, meaning it is helping to reduce the budget deficit. Ex-Im Bank does not compete with private lenders, it can only loan to parties that are good credit risks, and the vast majority of companies tapping its resources are small or medium-size enterprises. But the most important thing it does is level the playing field for U.S. exporters so all those jobs in places like Florida and Pennsylvania and Texas don’t go away. None of that seems to matter to the Club for Growth. In Winston Churchill’s famous phrase, it is willing to sacrifice this generation to a principle.
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