Republican Mike Rounds was elected to the Senate by the people of South Dakota, but you could be forgiven for believing this week that he represents the banks.
Rounds on Tuesday made it public that he would oppose the nomination of Scott Garrett, Donald Trump’s pick to run the Export-Import Bank. Lobbyists on K Street have opposed Garrett furiously because Garrett, a former congressman, is a conservative. Democrats unanimously oppose Garrett for the same reason.
In joining Democrats against his party’s nominee, Rounds, a generally conservative senator, is choosing industry over his principles.
Rounds is perhaps the least well-known member of the U.S. Senate, and the Export-Import Bank is a fairly obscure agency, but this matter is important beyond Rounds or Ex-Im.
Here’s the background:
The Export-Import Bank is a federal agency that subsidizes U.S. exports by delivering taxpayer-backed financing to foreign buyers. Scott Garrett was among the 50 percent of the congressional GOP who opposed the agency’s reauthorization in 2015, causing the bank to lapse for a few months. Garrett also called the agency a corruption of free enterprise.
President Trump nominated Garrett to run the agency, and Garrett has said as president of Ex-Im, he would carry out Ex-Im’s congressional mandate. The U.S. beneficiaries of Ex-Im have lobbied furiously against Garrett, because they fear he will change how the agency is run, perhaps reducing how many billions of dollars in financing Ex-Im issues every year.
Democratic senators, despite saying they oppose Big Business and corporate welfare, nearly unanimously support Ex-Im. (Bernie Sanders is the exception.) That means Rounds’ decision to oppose Garrett, reported by Politico on Tuesday, is enough to sink the nomination.
Rounds’ reason: “I believe him to be a proponent of the abolition of the bank rather than a reformer of the bank.”
This raises the question why Rounds likes Ex-Im in the first place, enough to buck his own president and set aside his free enterprise views.
The obvious place to look would be at his relationship with manufacturers, considering the National Association of Manufacturers has been Garrett’s fiercest opponent, and giant manufacturers like Boeing receive an overwhelming majority of Ex-Im’s financing. Those giant manufacturers—Boeing, General Electric, Halliburton, John Deere, Caterpillar, United Technologies—aren’t based in South Dakota.In fact, Ex-Im subsidizes very little in terms of South Dakota exports. Most of what South Dakota ships overseas is crops, and Ex-Im doesn’t finance those.
Rounds came into office in 2015. In fiscal years 2015 through today, according to Ex-Im’s data, the agency has subsidized only 7 South Dakota businesses for a total exports of $4 million.
Compare that to bordering states: $64 million in exports for Iowa, $379 million for Minnesota, $19 million for North Dakota, $142 million for Nebraska, and $17 million for Montana.
Sure, Wyoming’s and Alaska’s exporters get less Ex-Im largesse, but the other small states—Vermont, North Dakota, Montana, Delaware—all get multiple times as much Ex-Im love as South Dakota.
So this isn’t about helping his home state’s manufacturers.
U.S. manufacturers aren’t Ex-Im’s only beneficiaries, though. Of course foreign buyers, like Air China, love Ex-Im — but they’re not terribly tight with Rounds.
The other big beneficiaries of Ex-Im are the banks, and that’s where the Rounds connection comes in.
South Dakota is corporate headquarters to Citibank. In Rounds’ Senate election 2014, Citigroup was his top source of campaign contributions. The bank’s PAC gave him more than $10,000.
Why does Citigroup love Ex-Im? Because Ex-Im provides a taxpayer guarantee when Citigroup lends to foreign buyers of U.S. goods. The bank gets to profit on a no-risk loan. “There's nothing that a commercial bank loves more than guaranteed financing," Citigroup managing director Michael Eckhart said at a recent Ex-Im conference. "That's a good thing!"
Another former Citigroup banker told me at an Ex-Im conference that the government guarantee is “free money” for banks.
Garrett has often clashed with banks seeking government support — that’s one reason the financial industry so heavily supported his 2016 congressional opponent, who outraised Garrett two-to-one overall.
Rounds, meanwhile, is a longtime friend of the banks -- especially Citigroup -- and he was a vocal supporter of the 2008 Wall Street bailout.
Representing a state is about balancing interests. In the matter of Scott Garrett, Rounds has sided with the financial interests.