President Trump seems torn between his promise to drain the swamp and his desire to juice American companies. There’s a schism in his inner circle between conservatives and finance types.
Trump needs to ignore the pleadings of Wall Street and K Street and rein in corporate welfare as much as possible, for there are better ways of keeping his promise to promote domestic manufacturing.
So, what to do about the Export-Import Bank, a federal agency that subsidizes exporters by extending taxpayer-backed financing to foreign buyers of American goods? Conservatives have long blasted Ex-Im as corporate welfare, and during the campaign Trump, who called Ex-Im “feather-bedding” for a few companies, said it should be abolished.
Ex-Im is handicapped at present because conservatives in the Senate have blocked nominations to its board of directors, leaving it without a quorum. No quorum means no deals over $10 million, which upsets Boeing and General Electric, whose foreign buyers enjoy generous rates from U.S. taxpayers. Wall Street also misses these megadeals, because most Ex-Im transactions over $10 million are loan guarantees. A private bank gets the profit from its loan to a foreign company, while taxpayers bear the risk.
Which way will Trump go? Since Feb. 10, several lawmakers have told reporters he has privately committed to supporting Ex-Im and bringing it back to full strength, freeing up the $10 million, $100 million, or $1 billion dollar deals. Congressional sources indicate that inside the White House, Goldman Sachs alumnus Gary Cohn and Trump’s son-in-law Jared Kushner are said to be working to bolster Ex-Im.
But the Office of Management and Budget published a “hit list” of programs Trump might eliminate, and Ex-Im is on it, according to the New York Times.
When Washington Examiner White House reporter Sarah Westwood asked press secretary Sean Spicer which way Trump was going, he dodged the question.
But a candidate who campaigned against the “entrenched power structure” in Washington should know which way to go.
Ex-Im doesn’t create jobs but picks winners and losers. Even the American Action Forum, which supports Ex-Im, concedes, “For the economy as a whole, export financing merely redistributes jobs across the economy rather than create[s] more overall jobs.”
For every winner it creates, it also produces a loser. When Ex-Im subsidizes Air India’s purchase of Boeing jets, that hurts Delta Airlines, which competes with Air India. When Ex-Im subsidizes a refrigerator factory in Mexico buying American equipment, it helps kill jobs at the refrigerator factory in Indiana.
When a foreign borrower comes to J.P. Morgan with an Ex-Im loan guarantee, that means less financing is available to a borrower who doesn’t have the same backing.
Picking winners and losers is crony capitalism. Clinton wanted to “put Ex-Im on steroids” because it enriched her inner circle of revolving-door lobbyists and consultants.
If Trump wants to boost manufacturing, exports, and well paid American jobs, there are plenty of better ways to do it.
He should pursue bilateral trade agreements with countries such as Britain and Japan, opening markets for American goods. While negotiating or renegotiating trade deals, he should push foreign governments to stop demanding Ex-Im subsidies and to dial back their own export subsidies.
Regulatory reform would unshackle industry and reduce the competitive disadvantage American companies currently endure.
Lawsuit reform will be another critical part of revitalizing manufacturing. There’s only so much Congress can do on that, but it can do something by passing the Lawsuit Abuse Reduction Act, which passed the House last Congress and would discourage abusive lawsuits against businesses without affecting plaintiffs who have legitimate legal grievances.
Tax reform would be central. Sen. Mike Lee’s tax reform would abolish the corporate income tax, thus nearly turning America into a tax haven.
These policies would boost job creation while moving power away from Washington. Ex-Im shuffles money around the economy while empowering Beltway insiders to take a cut.
Trump’s K Street and Wall Street friends will push him to do what Clinton wanted to do. He ought to instead to think bigger and push through sweeping structural changes that will lift the whole economy and the whole country, not businesses selected politically to be winners.
