The Export-Import Bank: Corporate Welfare or Trade Stimulator
September 06, 2015
The fate of the Export – Import Bank has created intense debate and legislative standoffs this summer leading into the August recess. Not only dividing congress down party lines, but also dividing congressional leadership with House Majority Leader McCarthy staunchly opposed, and Senate Majority Leader McConnell in support. On June 30, Congress allowed the 81 year old institution to expire after first being created during the height of the Great Depression. Although supporters of the bank were disappointed, many in Congress took solace in the hopes that it would certainly be brought back by attaching it to another bill, most likely, the upcoming highway spending bill. However, through some gamesmanship the House went into recess early forcing the Senate to take up its two month highway spending bill that did not include the reauthorization of the EX-IM Bank. Although the issue is settled for now, legislators on both sides recognize this battle over the bank is far from over.
Author: Brian Gallagher, C’17
First, some brief background on the Export-Import Bank and its purported purpose. It was created in 1934 as part of the New Deal in order to expedite trade with the recently recognized Soviet Union, but soon its mission expanded to include Cuba and then all countries. The bank’s main function is to provide low interest loans and loan guarantees to foreign companies looking to purchase US exports, in order to make US exports more competitive in the world market. The Bank made a resurgence onto the national scene when President Obama announced in his first term that he was launching a National Export Initiative which sought to double US exports by 2014.
In light of the ongoing controversy surrounding the bank, I wanted to evaluate its impact on the economy in order to determine if it has been a net positive for America. Supporters of the EX-IM Bank argue that the bank performs several important functions including increasing exports and US job growth. The bank states that in fiscal year 2014 they supported $27.4 billion in US exports and supported 164,000 American jobs all at no cost to the taxpayers (www.exim.gov). Furthermore, supporters point out that other governments heavily subsidize their industries, so the bank is needed to level the playing field for US companies to engage in trade. These points are legitimate and raise important concerns; however I have found that they do not tell the full story. I firmly believe that there has been a disconnect between the intentions and the results of the government increasing its involvement in the free market, and the unintended consequences are virtually unavoidable.
Over time, the EX-IM Bank has not led to a significant change in US exports, in fact, it simply shifts which industries see trade growth, according to the Government Accounting Office (James, 2). So in reality, the bank creates a distortion in the market by changing the allocation of exports without actually affecting the trade balance as a whole. The same can be said for job growth unfortunately. Industries that receive the benefit of the bank experience job growth but is offset by job losses in other sectors that are less impacted by the bank.
I think it is great that the bank has been self-financed since 2008, which means that its activities have not contributed to our nations mounting debt and deficits. The issue is however, that taxpayers are still responsible for the bank’s outstanding loans and thus if any losses are incurred, the bill would fall on the taxpayers. This is especially disconcerting because the loans made by the EX-IM Bank are inherently more risky. I say this because the bank has to make these loans seeing as though the private sector has deemed the investments too risky to engage in, thus forcing the EX-IM to pick up the slack.
The most troubling aspect of the bank, in my opinion, is the disproportionate amount of financing that goes to a handful of large firms. An unfortunate status quo has developed in which the largest and most politically connected firms have received most of the taxpayer funded benefits in the name of supporting those very same working people. For instance, companies such as Boeing and General Electric have benefited enormously, with 40 percent of the banks activities going towards Boeing alone within the last few years.
The Export-Import Bank has been an uncontroversial government entity for decades. It was reauthorized time and time again with little debate or issue. However, now it has risen to become an incredibly potent issue despite the fact that National Election coverage is constant, and congressmen are heavily debating the foreign policy implications surrounding the controversial Iran Deal. I believe this is a reflection of a broader shift in the American political psyche, a new found focus on the relationship between government and business and what the proper boundaries are. We are now redefining what is considered collusion and corporatism, and what is considered necessary government action to facilitate our economy. I feel that the Export – Import Bank now falls under the former, and it is time for it to fall to the wayside permanently.
De Rugy, Veronique. “End the Export-Import Bank.” Reason.com. Reason Magazine, 18 June 2015. Web. 02 Aug. 2015.
James, Sallie. “Time to X out the EX-IM Bank.” Herbert A. Stiefel Center for Trade Policy Studies (2011): 1-18. Web. 3 Aug. 2015.
“New Deal Trade Policy: The Export-Import Bank & the Reciprocal Trade Agreements Act, 1934 - 1921–1936 - Milestones - Office of the Historian.” N.p., n.d. Web. 01 Aug. 2015
Perspectives on the Export Import Bank of the United States, Committee on Banking, Housing, and Urban Affairs United States Senate Cong. (2015) (testimony of Daniel J. Ikenson). Print.
“The Facts about the EXIM Bank.” www.exim.gov. Export Import Bank, n.d. Web. 1 Aug. 2015.
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