It’s rapidly approaching the eleventh hour for Congress to determine the future direction of the Export-Import Bank (Ex-Im). The Bank’s charter is set to expire in September and attempts to reach a bipartisan deal for its reauthorization have stalled over the last few weeks over foreign policy concerns. In a recent post, NTUF examined the pluses and minuses in the underlying legislation. Beyond the actual legislation being considered, the “competitiveness” argument that advocates use to support expanding Ex-Im’s lending capacity are completely groundless.
Currently set at $135 million, the Bank’s aggregate loan authority represents the total outstanding guarantees it may issue in a year. These loans, subsidized by taxpayer dollars, are issued to foreign and domestic companies at terms that would otherwise be unattainable through commercial financing. This has led the Bank to represent itself as the lender of last resort for its borrowers. However, this claim was notably omitted from the recent release of the Bank’s annual competitiveness report, which repeatedly expressed how other countries’ export credit agencies (ECAs) do not identify as the lender of last resort. Combined with the expectation of increasing borrowing authority, Ex-Im’s apparent willingness to minimize this foundational restraint is alarming.
Proponents of such a move argue that other countries are “weaponizing” their ECAs by providing strategic lending to their domestic exporters. This has proven to be an argument that transcends party lines, as the Republican-led Senate restored quorum on the Bank’s board earlier this summer, allowing the institution to resume issuing loans in excess of $10 million for the first time in four years. Ex-Im has nearly $40 billion in pending transactions awaiting consideration by the Board. These large loans can quickly constitute a sizeable portion of its total lending authority and, if history is any indication, is likely to significantly increase the loans issued by the Bank.
This Congress’s stance regarding the Bank is a marked shift from the last reauthorization process in 2015, where fiscal conservatives led the charge to temporarily expire its charter and forego voting on nominees to reestablish Board quorum. Presently, members on both sides of the aisle are quick to point out what other countries (mainly China) are doing with their ECAs and how Ex-Im should seek to emulate them.
An increase in Ex-Im’s lending capacity seems to be guided by a desire to win a competition over which country can provide the most taxpayer-subsidized lending to its domestic companies. Currently, the United States is ranked 25th in medium- and long-term export credit volume. If the capacity of Ex-Im were doubled it would move to a tie for 20th place with Hungary. Ten countries provide at least an order of magnitude greater in their amount of ECA lending. Ex-Im would need to multiply its lending capacity by 130 times its current volume to equal China’s reported export credit volume.
The question that should be asked of those advocating to increase the Bank’s capacity: At what level of taxpayer-subsidized lending are we adequately “competing” with other ECAs?
By its own limited functioning while the Board lacked a quorum, Ex-Im has proven to be superfluous to achieving the policy objectives that are now being used to advocate for its expansion. In 2013, when the Bank last had full lending capabilities, just five corporations received over half of Ex-Im’s entire lending assistance. Nevertheless, these chief beneficiaries of Ex-Im’s loan guarantees have continued to thrive during its hindered capacity. Despite their “lender of last resort” being hamstrung over the past few years, these five companies combined to record tens of billions of dollars in profit for 2018.
If anything, these last few years illustrate why the Bank’s existence should be reconsidered altogether. Genuine debate over Ex-Im’s costs to taxpayers has given way to “whataboutism” pointing to other countries’ subsidized lending practices. If the debate is to continue down this path, the unchecked proliferation of the Bank is an inevitability.
During her confirmation process last year, current Bank President Kimberly Reed testified, “In a perfect world, there would be no ECA financing. If confirmed, I will work with the U.S. government and, as appropriate, the OECD, G20, WTO, and other forums to move towards the ultimate goal of eliminating all ECA financing. On that you have my pledge.” Lawmakers’ attempts to expand Ex-Im’s lending capacity is a step in the exact opposite direction of this pledge. For the sake of taxpayers, discussions over the Bank’s future should return to a renewed assurance that Reed’s promise will be kept. Just because other countries are implementing a flawed policy is no reason for the U.S. to do the same. As economist Milton Friedman explained it best in Free to Choose:
Another source of “unfair competition” is said to be subsidies by foreign governments to their producers that enable them to sell in the United States below cost. Suppose a foreign government gives such subsidies, as no doubt some do. Who is hurt and who benefits? To pay for the subsidies the foreign government must tax its citizens. They are the ones who pay for the subsidies. U.S. consumers benefit. They get cheap TV sets or automobiles or whatever it is that is subsidized. Should we complain about such a program of reverse foreign aid?
Congress should ask themselves this question posed by Mr. Friedman. If reauthorization continues to expand Ex-Im, legislators risk further neglecting the Bank’s true costs of their taxpayer-subsidized loans.