CORRECTION: An earlier version of this story misstated the chain of command for the Export-Import Bank and the Commerce Department. While closely related and interactive, the bank does not report to the department but to the president.
The Export-Import Bank is fighting for its life. The tiny arm of the government’s international trade system that finances big and risky trade is under attack in Congress, where the Senate last week defeated a measure to reauthorize its funding. The Obama administration defends the bank as a necessary tool in its quest to double exports by the end of 2014. But in truth, the bank is not as essential as the White House assumes. And if it’s worth saving, it’s not for the reason the White House suggests.
Export credit agencies such as Ex-Im, which provide government guarantees to reduce the risk of international commerce, are a staple of global trade. America’s Depression-era institution steps in when businesses want to make deals abroad but investors are too skittish to bet on them — or when competition for a foreign contract is so intense (or so risky) that the U.S. bidder needs some extra incentive to prove that it is a better or more stable supplier than its rivals. All of this costs the government nothing, because Ex-Im backs international trade deals through a self-financing system: Fees and interest recoup more than 100 percent of every loan.
It’s a kind of trade subsidy, but supporters say that without it, the United States would fall behind. Every major exporting nation has an agency that does the same work — and they often do it bigger and better. Official U.S. support can be the key to convincing skeptical buyers that an American company is the best choice. Even in countries where the United States is not held in great esteem, a stamp of approval from the world’s only superpower can turn even a small deal into a sure thing. That’s why powerful business groups such as the National Association of Manufacturers and the U.S. Chamber of Commerce blitzed Capitol Hill in recent weeks with exhortations to save the Ex-Im Bank.
But opponents (deficit hawks, laissez-faire types) point out that neither its mission nor its track record merits renewal. Ex-Im was responsible for backing just $40 billion (2 percent) of the nearly $2 trillion U.S. export market last year, according to bank Chairman Fred Hochberg. What’s more, about 80 percent of its funds went to giant multinationals that hardly need incentives to stay active in global markets. After all, big U.S. corporations wouldn’t suddenly stop trading in some iffy markets if federal financing dried up. Boeing would keep selling planes across Africa. Caterpillar would keep sending backhoes to dig ditches in Costa Rica. General Electric would keep selling components across the globe.
In the end, the Export-Import Bank is nothing but a provider of corporate welfare, argue Grover Norquist and his acolytes in think tanks and on the Hill. They say that Washington has no businesses doling out huge loans to help finance international trade. The federal government shouldn’t pick winners and losers — let alone put the winners on an express train to big contracts abroad.
Yet the bank does serve one crucial purpose that no other organization can fulfill: It helps to deny China a hold on the world’s developing markets. Ex-Im’s top export targets include Brazil, Colombia, India, Indonesia, Mexico, Nigeria, South Africa, Turkey, and Vietnam. Today, none of those countries ranks among the top 10 markets for U.S. exports, but the Export-Import Bank devoted 40 percent of its loans to them. It funded 34 percent of all U.S. exports to Colombia in the months before the United States approved a free-trade agreement with that country. In an interview, Hochberg said that the bank focuses on pumping aid and attention to places with the hottest economic activity.
The bank can also help American companies beat competitors that don’t follow the same trade rules. In 2011, for instance, it stepped into a bidding war for a Pakistani locomotive contract between General Electric and a company in China, which does not abide by the rules against below-market pricing set by the Organization for Economic Cooperation and Development. Ex-Im ponied up $477 million to discount the American trains, putting them on the same playing field as the Chinese ones. The deal required an OECD waiver that only Ex-Im — or some other U.S. government entity — could get.
And although huge corporations won’t quit their global businesses, smaller companies might face real trouble without Ex-Im. The bank can be crucial to getting new trade started for cash-strapped small businesses. It is often the only lender for companies that want to make deals where Wall Street-style financing doesn’t exist — growth markets, such as the booming metropolises in South Asia, that aren’t considered safe or aren’t members of the World Trade Organization. These are the spots where China is setting up shop.
Hochberg and Commerce Undersecretary Francisco Sanchez tell National Journal that helping small companies to do business in small countries is part of an overall strategy. Those contracts can mean a foothold for American businesses. If the future of the U.S. economy depends on exports and the future of America’s strategic advantage is in extending its economic might, then Congress will need to ensure that the American companies that truly need help get it.