They’re Dancing in the Streets in Beijing and Berlin
Congressional authorization of the U.S. Export-Import Bank (Ex-Im Bank) is set to expire this evening, ending 81 years of continual and effective operation in the service of American exporters. The Bank has played a critical role in supporting the competitiveness of America’s traded-sector enterprises—that is, those competing in global markets—by stepping in to provide financing or insurance for export transactions that might not otherwise occur and by leveling the playing field for U.S. exporters by matching the credit support that other nations provide for export transactions.
Yet while some in Congress are pleased that they’ve “beat back the scourge of crony capitalism,” those who are truly giddy with delight are to be found in the capitals of the more than 80 countries that operate export credit agencies (ECAs)—from Beijing, to Berlin, to Brussels—and at the headquarters of businesses both small and large in such countries. That’s because, much to the chagrin of those in Washington who insist on not recognizing that America’s traded-sector enterprises are locked in fierce competition with foreign businesses spanning the globe, the ECAs of America’s competitors aren’t going to close up shop overnight in solidarity with the now-shuttered Ex-Im Bank.
Rather, as ITIF documented just two weeks ago in a post titled Latest Data Lend Urgency to Need for Ex-Im Bank Reauthorization, the evidence shows that foreign export credit competition has only increased in recent years. Indeed, in 2014, China invested eight times as much in export credit assistance as the United States, while Germany invested six times as much, and France and Italy almost five times as much. And from 2011 to 2014, China invested twice as much in export credit assistance as the United States did—$162 billion to the United States’ $79 billion—despite the fact that China’s GDP stood at 60 percent of America’s level. As a share of GDP, Germany has invested 4.5 times and China 4 times as much in export credit as the United States has since 2011.
And one can expect countries’ investments in export credit to only increase further in the future, as countries scramble to fill the void in export finance caused by the Ex-Im Bank’s departure from the scene (although hopefully this will be only a temporary withdrawal). Expect the Export-Import Bank of China to be especially aggressive here, with Chinese exporters among the real beneficiaries. Also especially troubling is that, as America steps away from its leadership role in defining the terms on which nations offer export credit assistance to foreign purchasers of their countries’ enterprises’ goods and services, the use of unregulated export credit finance will only grow. In fact, whereas 100 percent of trade-related official credit support fell under the aegis of the OECD’s 1999 Arrangement governing fair use of export credit, today that share has been reduced to only 34 percent. In fact, in 2014, 83 percent of total global unregulated trade-related official support was issued by Asian ECAs, and from 2013 to 2014, the volume of unregulated trade-related official support from governments in China, Japan, and Korea increased over 20 percent from $117 billion to $151 billion.
Thus, while some are pleased that they’ve slayed the bogeyman of big government, the real casualties from their strike will be caused by the collateral damage that falls both on American workers and businesses. Through helping to finance the exports of American goods and services, the Bank has supported more than 1.3 million private-sector jobs since 2009. In 2014, 90 percent of the Bank’s transactions—over 3,340—directly supported American small businesses, with the Bank supporting the exports of at least 33,000 small businesses in 2013. Of course, the Bank also supports the exports of large U.S. manufacturers such as Boeing, Caterpillar, General Electric, and John Deere, but such advanced manufacturing enterprises only support high-value-added, high-wage, American jobs that pay 17 percent more than the average U.S. private sector job. Meanwhile, America’s taxpayers are beneficiaries from Ex-Im’s operations, with the Bank earning $2 billion more than the cost of its operations after covering loan loss reserves over the past five years. In FY 2014, the Bank returned $675 million in earned interest and fees to the U.S. Treasury while providing export credit assistance for over $27 billion in exports that supported 164,000 American jobs.
Though the Bank’s authorization won’t lapse until the close of business today, thus preventing it from authorizing new loans or guarantees as of that time, the damage is already being felt. As Bank Chairman Fred Hochberg recently testified, American companies—including many small businesses—have already lost out on sales due to the growing uncertainty among overseas buyers that the Bank may not be there to back their purchases with insurance and capital financing. As Tyler Schroeder, a financial analyst with Texas-based Air Tractor Inc., a manufacturer of agricultural aircraft noted, “Our customers are watching this…We plan 10 or 20 years in advance in new markets. How can we plan if we can’t get financing?”
The sad reality is that America’s workers and exporting businesses—small and large alike—will be harmed by Congress’s failure to expeditiously reauthorize the Bank. ITIF calls on Congress to make reauthorization of the Ex-Im Bank a priority when it reconvenes after the July 4th recess.
