Subsidizing exports benefits the subsidized exporters. That doesn’t mean it’s a good idea.
This summer and fall, we'll see a serious debate over an 80-year-old federal agency called the Export-Import Bank. Ex-Im subsidizes U.S. exports by extending taxpayer-backed loans and loan guarantees to foreign buyers of American-made goods.
A vast majority of Ex-Im’s financing subsidizes the 10 largest exporters in the country. Yet nearly all Democrats (who supposedly hate the privileges of Big Business) and many Republicans (who supposedly believe in free enterprise) defend the agency.
Ex-Im’s defenders in Congress and on K Street reliably charge their opponents with dwelling in an imaginary world — of dealing with ideas instead of reality.
“In a perfect world, this type of export financing would not be necessary,” 41 Republicans wrote in a recent letter supporting the export-subsidy agency.
Rep. Steve Stivers, R-Ohio, in the recent congressional hearing on Ex-Im branded opposition to Ex-Im as “ivory tower” silliness. Rep. Brad Sherman, D-Calif., said opposition to Ex-Im was based on “the books of Ayn Rand.”
But as American Enterprise Institute economist Michael Strain says, “just because something is true in theory doesn’t mean it’s false in practice.” (I should note here that I am a visiting fellow at AEI.)
Ex-Im has some real-world beneficiaries, to be sure. For example, Ex-Im's board of directors on June 5 approved two loan guarantees to subsidize Chinese companies' purchase of Boeing jets. No doubt, the companies involved benefitted.
The buyers — Air China Cargo Company and the Agricultural Bank of China — likely get lower interest rates because of the Ex-Im guarantee.
Wells Fargo gets free money, because it collects interest on the loan to China while U.S. taxpayers bear most of the risk.
Boeing at least gets higher profit margins, and in some cases, the subsidy is the key to Boeing winning the sale at all — which means the company’s workers and shareholders also benefit.
Of course, Wells Fargo, Boeing and the state-owned Agricultural Bank of China are not exactly the most sympathetic welfare cases. So Ex-Im and its defenders trot out some of the businessmen who benefit from the 18 percent of its financing the agency dedicates to small business.
Miss Jenny's Pickles is one of the favorite subsidy recipients for Ex-Im chairman Fred Hochberg. Thanks to a taxpayer-backed line of credit, Jenny Fulton was able to expand her pickle business and start selling her pickles overseas. So it's probably safe to say Miss Jenny benefits from Ex-Im.
The pro-Ex-Im argument goes this way: These beneficiaries of Ex-Im are real, while the opposing arguments about corporate welfare and free markets are “ivory tower” stuff.
But the Export-Import Bank’s victims are just as real as its beneficiaries.
Delta Airlines is the most outspoken victim of Ex-Im. Delta competes against foreign airlines such as Air India. Ex-Im subsidizes Air India's purchases of Boeing jets, while Delta pays full price. This hurts Delta. (It doesn't help the company that Delta received a post-9/11 bailout.)
And when Wells Fargo lends money to Chinese banks buying Boeing, that shrinks the amount of money Wells Fargo can loan to other borrowers. In many circumstances, that guaranteed loan means the bank says no to some other borrower.
The loser is the business that didn’t have a government guarantee and so didn’t get the loan, or who got the loan on worse terms from some other bank.
And Miss Jenny’s Pickles isn’t the only pickle seller in America. A government-backed line of credit gives Miss Jenny a financing advantage over other similarly sized and situated pickle producers. Miss Jenny’s gain is their loss.
As the American Action Forum — generally an Ex-Im supporter — put it in a 2011 study of the agency: “For the economy as a whole, export financing merely redistributes jobs across the economy rather than create more overall jobs.”
So the debate is not between Miss Jenny’s Pickles and Friedrich Hayek or Ayn Rand. The debate is between Ex-Im’s real world beneficiaries and Ex-Im’s real-world victims. Is Ex-Im creating more business and more jobs than it is costing?
This question is nearly impossible to measure, because we’re weighing the beneficiaries’ gains against the gains that never happened, thanks to the subsidy.
The costs of Ex-Im are perfectly real, but they’re largely unseen.
So ask yourself who is likely to create more economic growth: the investments picked by a handful of politicians and bureaucrats, or those picked by millions of consumers and hundreds of lenders acting freely?
This isn't a fight between airy ideas and real-world benefits. It's a fight between outspoken beneficiaries and hidden victims. In other words, it's another fight between the politically connected and the less powerful.Timothy P. Carney, The Washington Examiner's senior political columnist, can be contacted at firstname.lastname@example.org. His column appears Sunday and Wednesday on washingtonexaminer.com.