“A slush fund for market-distorting subsidies that pick winners and losers in the private sector.”
~ Club for Growth President Chris Chocola on the Ex-Im Bank, which helped finance his family business
The Export-Import bank, Ex-Im as it is known, is a U.S. government agency that provides low-interest loans to exporters and guarantees to foreign buyers of American goods.
Ex-Im is up for reauthorization on September 30th. Republicans are on the fence but it’s unlikely they will vote against it. The Ex-Im Bank’s supporters include the U.S. Chamber of Commerce, the National Assn. of Manufacturers and many Republicans and Democrats in Congress.
The Chamber of Commerce wants it reauthorized to prevent the loss of American jobs to foreign competitors. In opposition are organizations like Heritage and very conservative Republicans.
Some say Ex-Im is government interference in the private-sector lending market, helping big corporations like Boeing. It’s corporate welfare.
Boeing and its affiliates received $8 billion of the total of $12 billion in Ex-Im loan guarantees during the last fiscal year. It also helps small to medium-sized businesses.
The bank doesn’t put up taxpayer money upfront, but rather loan guarantees, for which the recipients pay a fee; taxpayers are on the hook only if the borrowers default. The bank’s accounting shows that it’s returned a profit to the government of $2 billion over the last five years. The projected profit over the next 10 years is $14 billion.
The bank has a default rate of less than one-quarter of one percent because of their cautious lending practices.
Some of the airlines complain that the Export-Import Bank is subsidizing its global competitors by financing their cheap purchases of American airplanes.
If Delta buys an American plane, they don’t get the export-import subsidy. They’re competing with a Virgin or an Emirates or another global airline that does get access because they are buying it in the export market.
Should non-American-based airlines use these loans to buy their aircraft using U.S. government-subsidized rates? Should these loans be made at higher rates, or should they not be made at all? Nicole Gelinas, the Searle Freedom Trust Fellow at the Manhattan Institute, believes it distorts the marketplace.
John Murphy, the U.S. Chamber of Commerce senior vice president for international policy, says it gives U.S. businesses an opportunity to bid competitively and in some cases, they would not have been able to bid at all.
Not authorizing the bank would lead to tens and even hundreds of thousands of layoffs at small- and medium-sized companies that depend on the bank directly or that are suppliers to large companies, Murphy contends.
Ironically, we are subsidizing fossil fuels throughout the world through Ex-Im while refusing to approve the KeystoneXL pipeline or open up more government lands to drilling. More government lands have been shut down under this president than ever before.
A total of 5.87 million metric tons a year will be authorized as U.S. exports from four new fossil-fuel power plants, 3.67 million metric tons will be produced at natural gas-fired plants in Spain, Russia, and Israel, and 2.2 million metric tons will be produced by a coal-fired plant related to a copper-mining project in Mongolia.
The bank provided $494.5 million for exports to the project in Mongolia and $32.3 million in “engineering services” for a petroleum refinery in Russia (2013 report, page 26 at Heritage).
In 2011, billions of dollars were slated to go to Brazil so they could build a refinery, something we haven’t done since 1976, according to CNS News. The money went to Reficar, a wholly owned subsidiary of Ecopetrol, the Colombian national oil company.
“This is part of a $5.18 billion refinery and upgrade project in Cartagena, Colombia supplying petroleum products to the domestic and export markets,” the Export-Import Bank said in a statement.
The largest project Ex-Im supported was $3 billion in financing for a liquid natural gas project in Papua New Guinea,” according to ihatethemedia.
These subsidies are aimed at keeping U.S. jobs for American exporters.
The reauthorization is being considered by Congress now. Alan Greenspan, former Federal Reserve chairman, was asked if he supports renewing the bank’s authorization by the hill.
He said, “As an economist, no. But if I were a politician running for office, I suspect I might.”
“The Export-Import Bank is fundamentally a subsidy for American exporters,” Greenspan said. “But the other question you have to ask is, ‘Does international competition and global economic activity do better if no country subsidizes its exports?’ My answer is yes.”
“There is just no doubt that, from a political perspective, all that is visible is the immediate subsidy advantage,” Greenspan said. “Foreign competition’s response is never considered. In politics, it’s the short term that regrettably sets policy, and that is what accounts for an overwhelming backing of the Export-Import Bank.”
Asked whether the economy would be hurt if the bank disappeared, Greenspan said it would “in the short term, probably — but not over the long term.”
“If no country artificially boosted their exports, the global economy would function better,” he said. “In the end, it’s a zero-sum game. To be sure, in the short run, those offered export subsidies gain an advantage until foreign competitors counter the subsidy.”
Therein lies a problem – other countries won’t cooperate and will continue to subsidize.
If you want to get really confused, check out the pros and cons at the Washington Examiner.