Is the U.S. Export-Import Bank Finished? Should Exporters Be Up in Arms?

 In economy, export, Export-Import Bank, President Obama

On June 30th, the U.S. Export-Import Bank’s charter expired for the first time since President Franklin D. Roosevelt created the federal credit agency by executive order in 1934.

That’s 81 years the United States has had its Export-Import Bank! We may now be seeing the end of this federal agency.

Why Are We Blogging on This?

Matthew Matuse asked for our thoughts on the lapsing Export-Import Bank on our Facebook page.

Export-Import_Bank_Matthew_Matuse

We love getting questions and blog suggestions from you on our social media pages. We take you and your thoughts seriously and are always willing to blog on the topics with which you’re concerned.

Thank you for your question, Mr. Matuse. This blog will discuss the situation with the Export-Import Bank and then I’ll share my thoughts. As a disclaimer, I would not presume my opinion represents the opinion of everyone here at Universal Cargo Management.

What is the Export-Import Bank?

There’s a good chance the average American doesn’t actually know what the Export-Import Bank is. I’ve seen it referred to as obscure. So we start with the basic foundation of what the U.S. Export-Import Bank is.

As the official export credit agency of the U.S. federal government, the U.S. Export-Import Bank subsidizes foreign purchase of U.S. export goods.

Using loans, guarantees, and insurance programs, the Import-Export Bank makes export deals happen with customers who cannot or will not assume the credit risk involved with such deals.

Export-Import Bank Opposition

I actually blogged on this three years ago when reauthorization of the Export-Import Bank met resistance in Congress.

In 2012, Congress ultimately passed legislation to reauthorize the Export-Import Bank, but the agency was in danger of being dissolved then.

Reauthorizing the Export-Import bank met resistance on a couple counts. The first criticism is that the Export-Import Bank is the government stepping into the marketplace. This concerns many conservatives and Republicans.

Back then when I blogged on the Export-Import Bank, a Bloomberg Businessweek article by James Rowley on the topic quoted then Majority Leader Eric Cantor as he gave voice to many Republicans’ concerns that “export subsidies distort the free market and global trade.”

This first count brought against the Export-Import Bank from Republicans and conservatives has not subsided over the last three years. In fact, it represents a concern that may have even grown stronger.

Justin Amash, R-Cascade Township, who represents Michigan’s 3rd Congressional District, wrote a guest column, published on MLive, titled “Keep Export-Import Bank in its corporate-welfare grave“.

The title alone is enough to know Congressman Amash’s view on the Export-Import Bank; however, quotes help demonstrate why the Export-Import Bank is so strongly opposed by those like Congressman Amash:

On June 30, regular Americans won a big victory with the expiration of a particularly egregious example of cronyism, the Export-Import Bank, also known as Ex-Im.

Congressman Amash goes on to call the Export-Import Bank not only “cronyism” but also “corporate welfare”. He then states, “corporate welfare is inherently unjust and immoral.”

This idea of corporate welfare is the second major count brought against the Export-Import Bank. Most of the financial aid from the Export-Import Bank goes toward benefiting large corporations, and Boeing in particular.

In 2013, opponents of reauthorizing the Export-Import bank pointed out that $11 billion–a little over a third of the financial support given by the Import-Export Bank the previous year–supported Boeing sales of aircraft. Delta Airlines said this hurt their profits because the government was giving subsidies to their competitors for buying Boeing’s latest aircraft.

No real change came during the last three years after the Export-Import Bank’s reauthorization. Congressman Amash points it out in his guest column:

Ex-Im subsidizes the exports of mostly large, well-connected corporations. The top beneficiaries of Ex-Im’s support in 2014 included Boeing, General Electric, and Caterpillar — hardly companies in need of taxpayer assistance. Boeing alone received more than 68 percent of the benefits from Ex-Im’s long-term guarantees in 2014, which is why people derisively refer to Ex-Im as “Boeing’s Bank.”

The below chart shows exporters who receive financial assistance from the Export-Import Bank.

Biggest_Beneficiaries_of_the_Ex-Im_Bank

Conservatives and Republicans who oppose the Export-Import Bank argue this is not somewhere taxpayer money should go. As quoted above, Congressman Amash would even say it is immoral for taxpayer money to go to the Export-Import Bank’s programs.

Support for the Export-Import Bank 

President Obama is pushing for Congress to reauthorize the Export-Import Bank.

According to an Associated Press (AP) article on USNews.com, the president “warned Wednesday that American businesses are suffering while the Export-Import Bank lapses…”

In a New York Times article (the one Mr. Matuse shared in the impetus for this blog), there are a couple quotes from President Obama that capture two of the biggest arguments given for reauthorizing the Export-Import Bank.

“The Export-Import Bank makes money for the U.S. government,” Mr. Obama said, referring to the loan repayments and proceeds from borrowers. “This is not a situation in which taxpayers are subsidizing these companies.”

The Export-Import Bank has a webpage titled “The Facts About Exim Bank“. That webpage states:

Over the past two decades, the Bank has generated nearly $7 billion more than the cost of its operations. That’s money EXIM Bank generates for the American taxpayer, to help reduce the federal deficit.

The next President Obama quote from the New York Times article representing an argument for the reauthorization of the Export-Import Bank is:

“For us to be the only country that leaves these outstanding companies high and dry makes absolutely no sense,” the president told reporters who were briefly admitted to his White House meeting with 10 business owners, two mayors and several Democratic lawmakers. “This should be a no-brainer,” he added.

The argument here is that losing the Export-Import Bank puts the United States at a competitive disadvantage with the rest of the developed nations in the world when it comes to the global market.

The AP article quoted above gives credit to President Obama as saying “the lapse puts the U.S. at a disadvantage because ‘every other advanced country has a program like this’ to promote its exports.”

In his push to get the Export-Import Bank reauthorized, President Obama has met with small exporters and is calling on their support. Proponents of the Export-Import Bank emphasize its financial assistance for smaller exporting businesses over corporate giants like Boeing.

The Export-Import Bank says on its facts page:

In FY 2014, Export-Import Bank financing supported $27.5 billion worth of U.S. exports. $10.7 billion of that total represents exports from U.S. small businesses, making small business exports the top category for EXIM Bank supported exports last year.

Here’s the Export-Import Bank’s pie chart of the 2014 Export Value by Industry and Small Business:

2014_Export_Value_by_Industry_and_Small_Business

My Opinion on the Export-Import Bank

Okay, so I’m finally going to actually answer Mr. Matuse’s question. The only problem is, it’s a little complicated because I’m ambivalent on the subject.

Overall, I think the Export-Import Bank can aid the United States’ competitiveness in the global market and help U.S. exporters. For those reasons, I am for the Export-Import Bank, but I also have reservations and think amendments are appropriate with its reauthorization.

During the last reauthorization, greater transparency was pushed for by Republicans and put on the Import-Export Bank. Greater transparency is a very good thing.

The deal creating greater transparency and allowing the Export-Import Bank to get reauthorized in 2012 “directs the bank to make clear that loans are needed for such reasons as assuming risks the private sector won’t undertake or meeting competition from foreign export credit agencies,” according to the Jim Abrams Associated Press article from the time.

Again, that the Export-Import bank does not compete with the private sector is very important and I’m in favor of strong regulations on the agency ensuring that. When aiding businesses, especially corporations, the Export-Import Bank must be able to clearly show it is to meet competition from other countries in the global market not to undercut competitors from the U.S.

Amendment Time: Increase requirements to document above criteria.

It seems the transparency could be made greater than it currently is. The Mercatus Center chart above shows the top export beneficiaries of financial assistance from the Export-Import bank, but somehow the second largest business (with financial assistance valued at $2.9 billion) is unknown.

Unknown? Amendment time: More transparency.

Boeing receiving a competitive edge over Delta through the Export-Import Bank is a problem.

Amendment time: Regulation against favoritism of one U.S. business over another.

While on the topic of Boeing, the Export-Import Bank does subsidize corporations that do not really need this kind of help from the government.

In their publication on the biggest beneficiaries of the Export-Import Bank Mercatus Center brings up a good point about the large corporations who lobby to keep the Export-Import Bank open:

Boeing, Caterpillar, General Electric, and the rest have a large incentive to keep the Export-Import Bank running, despite the fact that the Bank’s own leader, Fred Hochberg, has publicly admitted that these firms can “arrange their own financing” without the Bank’s help.

Amendment Time: Increase regulation on the Export-Import Bank’s corporate financing.

One area that would largely affect whether or not to really support the U.S. Export-Import Bank is whether or not it actually makes money for the country or costs the country money.

According to the Congressional Budget Office (CBO), a nonpartisan analysis company that produces independent analyses of budgetary and economic issues to support the Congressional budget process, the “Ex-Im Bank’s six largest programs would generate budgetary savings of $14 billion under FCRA accounting but cost $2 billion on a fair-value basis.”

Not surprisingly, Congressman Amash pointed this out in his column.

Amendment Time: Independent, nonpartison accounting and overview must be used to keep costs/profits accountable.

So that’s where I stand on the Export-Import Bank–renauthorize it with ammendments increasing the regulation on the federal agency. Again, that is not the position of everyone here at Universal Cargo Management nor is it UCM’s official stance.

Where do you stand on Export-Import Bank. Let us know in the comments section below.

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Source: Economy

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