Different factions of the Republican Party are at war over the Export-Import (Ex-Im) bank. “Corporate/business” Republicans (and most Democrats) want to continue the operation of the Export-Import Bank because it helps companies sell their products outside of the U.S. “Tea Party” Republicans want to shut down the bank. What is going on?
What Is The Ex-Im Bank And Why Do Conservatives Hate It?
The corporate side of the Republican Party, like the Chamber of Commerce, likes the Export-Import Bank because it helps U.S. companies export their products. The bank provides guarantees, insurance and extensions of credit to help non-U.S. customers of U.S. companies obtain financing for transactions when private banks decline to participate. In other words, it helps foreign buyers find loans so they can buy things made here but without competing with the private financial sector. (There are rules covering the U.S.-made content of items that are financed and rules about the recipients being able to compete with U.S. companies.)
A criticism of the bank is that it helps (the non-U.S. customers of) a few large companies a lot. One statistic thrown around is that the top 10 corporations whose customers get Ex-Im financing assistance account for 97 percent of the total dollar amount of financing. For example, some of Boeing’s non-U.S. customers rely on Ex-Im financing and Boeing’s customers accounted for $8 billion of the Ex-Im’s $12 billion 2013 total. But this is because Boeing’s product costs much more than the products of the approximately 3,400 small businesses that also rely on Ex-Im financing assistance to export their products.
Other U.S. aircraft manufacturers also receive Ex-Im assistance, but for aircraft that cost less than Boeing’s. Just a few examples:
- February 2014: $300 million financing guarantee for 8 Gulfstream jets. (2,100 U.S. jobs.)
- May 2013: $187.4 million guarantee for export of Sikorsky Helicopters. (1,500 jobs.)
- October 2011: Hawker Beechcraft for a demonstration aircraft fleet to use in connection with sales campaigns and other potential sales to non-U.S. based customers.
Here’s the thing. The non-U.S. competitors of these companies, such as France-based Airbus, receive substantial assistance from their governments to boost them in world markets. If Boeing’s customers can’t get this assistance they would certainly be able to buy from Airbus.
Small companies depend on assistance from the Ex-Im Bank in amounts that are high by number but small by dollar. In “How Small Businesses Really Use the Export-Import Bank,” at the New York Times, Robb Mandlebaum writes about “Dry Corp, a company that makes waterproof medical cast covers, and its sister company, Dry Case, which makes waterproof cases for smartphones, tablets and other gadgets.” The Ex-Im Bank helps them export, but their products cost very little compared to the price of a Boeing 777. While Boeing’s customers get big-dollar guarantees, small businesses depend instead on insurance so they can collect if the customer can’t pay for one reason or another. “In 2013, 2,160 of the 2,775 exporting companies that used the bank, or almost 80 percent, were small businesses,” the Times writes. These “small companies accounted for more than 90 percent of the bank’s insurance authorizations in 2013, and just over half the insurance dollars.”
From the article,
With their exports insured, Dry Corp and Dry Case, for instance, are willing to let overseas distributors pay in two months. “Before we had Ex-Im, we had to get cash-wire — basically cash upfront — before we could ship anything,” Mr. Heim said. “If it works for the customer, obviously that’s still good for us.” But, he added, others need flexible payment options.
“They’re bringing in our product to a country where our brand might not mean very much. So they have to spend a fair amount of time marketing, and building the brand, and that costs a fair amount of money,” he said. “If a company that’s starting to build our product and build our brand had to spend a million dollars for the product upfront, they wouldn’t have any money to spend on marketing. One of the things that the Ex-Im Bank and its credit terms allows them to do is it improves their cash flow.” That, in turn, allows those distributors to take a chance on relatively unknown products, like watertight cases for casts and gadgets.
Right-Wing Republicans Targeting Ex-Im Bank – Corporate Republicans Want It
The rightmost side of the Republican Party is trying to kill off the Ex-Im Bank. The conservative argument is not over the Ex-Im “costing” the government any money; it actually brings in extra money through fees that it collects. This argument is about allowing it to operate and thereby helping U.S. companies export their products.
Conservatives say the bank is an example of “cronyism.” In “Export–Import Bank: Cronyism Threatens American Jobs” at the Heritage Foundation, Diane Katz writes:
Global trade benefits the U.S. economy, but Ex–Im subsidies confer a competitive advantage to a select group of favored firms. Rather than perpetuate this cronyism, Congress should allow the bank’s charter to expire and undertake tax and regulatory reforms that would strengthen the competitive position of all U.S. businesses.
Cronyism: Favoritism shown to old friends without regard for their qualifications, as in political appointments to office.
Crony capitalism: an economic system in which family members and friends of government officials and business leaders are given unfair advantages in the form of jobs, loans, etc.
Note that the “crony” argument being made does not claim that any particular companies are receiving special “crony” treatment due to any insider (Cheney/Halliburton/no-bid contracts-style) arrangements. Under the charter of the Ex-Im Bank no American company is granted favors over other American companies. Is it “crony capitalism” to help American companies compete in the world?
Is Helping American Companies Export Products “Corporate Welfare”?
Another conservative accusation is that helping American companies compete against international competitors is “corporate welfare.” Diane Katz at Heritage again, in “U.S. Export–Import Bank: Corporate Welfare on the Backs of Taxpayers“:
Ex–Im advocates offer myriad excuses for maintaining government interference in export financing, including job creation, gaps in private investment, and government subsidies lavished on foreign firms. Such justifications do not stand up to the facts, and the purported benefits, if any, are not commensurate with the risk to taxpayers.
Congress must decide whether to extend billions of dollars in corporate welfare on the backs of taxpayers or allow private investors to finance U.S. exports—as it does for the vast majority of them. Policymaking could not get any easier.
(Noted earlier – Ex-Im doesn’t cost taxpayers and actually brings money to the government. Also the Bank does not provide financing if it is available in the private sector.)
Is it “corporate welfare” to help American companies compete in the world?
Dan Ikenson at Cato Institute, in “Export-Import Bank Debate Suggests Traditional Opponents of Corporate Welfare See Tea Party as Bigger Evil,” writes that it would be better to receive “lower prices” from non-U.S. competitors than to help U.S. companies compete in the world. “…[I]nstead, you pay more as foreign demand for that companies’ wares is artificially inflated.”
Note, Cato Institute’s definition of corporate welfare, “For the purposes of this study, ‘corporate welfare’ is defined as any federal spending program that provides payments or unique benefits and advantages to specific companies or industries.” Also at Cato, “Corporate welfare refers to subsidies and regulatory protections that lawmakers confer on certain businesses and industries. When considering budget issues, federal policymakers are supposed to have the broad public interest in mind. Unfortunately, that is not how the federal budget process usually works in practice. Many federal programs are sustained by special-interest groups working with policymakers seeking narrow benefits at the expense of taxpayers and the general public.”
The Ex-Im Bank does not provide benefits to “specific” or “certain” companies; the same benefits are available to all companies that export. Ex-Im does not provide special favors, subsidies or tax breaks to corporations at the expense of the rest of us. It provides those benefits in order to help create and keep U.S. jobs and lower the U.S. trade deficit.
What Is A National Interest?
It makes a difference to regular people if U.S. companies are better-able to export to other countries. The U.S. as a country runs an enormous, humongous trade deficit. This means Americans buy far more from outside the U.S. than we sell to the rest of the world. The trade deficit is a measurement of how many jobs, factories and entire industries leave the United States and migrate to other countries. A big trade deficit means jobs, factories and industries are leaving the country.
One reason for the trade deficit is that many other countries see themselves as countries with national interests so they develop national strategies to get those jobs, factories and industries. Meanwhile, we instead have a national ideology that says it is wrong for the American government to help America keep those jobs, factories and industries.
Others see themselves as countries in which all of the people have a common interest in their national economy. We see ourselves as little more a geographic location where a number of individuals and companies happen to be located.
From “Should We Let The Tea Party Kill The Export-Import Bank?”: “The United States unfortunately does not really have a national economic/industrial strategy to help American companies compete in the world for the benefit of our citizens and our balance of trade and our economy. (See: deficit, trade.) It does, however, try to provide this minimal assistance to exporters by helping their customers arrange financing for their purchases. The Export-Import Bank is one example of our country trying to help American businesses provide good American jobs.”
The governments in many other countries help “their” businesses. They “pick winners and losers” based on which winners will help their country gain the most jobs and wealth. Many countries approach this as a national necessity, like a war. They fight this war as countries, on a “war footing,” doing everything they can as a country to win.
We don’t, for the most part. The Ex-Im Bank is a small example of our government trying to help American companies and their workers.
And now those on the rightmost side of the Republican Party are trying to make it worse. They say our government shouldn’t “pick winners and losers” even when the government is trying here to pick American companies and the workers they employ as the winners.