Subsidized exporters are flooding Capitol Hill today to lobby for renewal of the Export-Import Bank, a federal agency that extends taxpayer-backed financing to foreign buyers of U.S. goods. I posted the talking points prepared by the “Ex-Im Coalition” hosting this lobby day. Below I address the arguments they make.
1. The Ex-Im lobby argues the agency doesn’t count as “corporate welfare,” but it never explains why not. Instead, the exporters just point out that Ex-Im helps them, and they say it doesn’t cost the taxpayer money. But most corporate welfare in the U.S. is off-budget — consider the ethanol mandate, or the sugar program, which are inarguably corporate welfare. They profit their beneficiaries and impose their costs on the economy through distortions, just as Ex-Im does.
2. The Ex-Im lobby says it’s not just for big business. They say 5,813 small business have used Ex-Im since 2007. This is misleading for a few reasons:
• A majority of Ex-Im financing goes to the four largest customers of Ex-Im.
• Boeing got 40 percent of Ex-Im financing in Fiscal Year 2014. That’s nearly twice as much as all small businesses combined.
• Ex-Im’s measure of small businesses includes companies with up to 1,500 employees.
3. The Ex-Im lobby says the agency operates “at no expense to taxpayers.” There are many counters to this claim.
• Ex-Im exposes taxpayers to risk, in case of default. Fannie Mae and Freddie Mac operated at no expense to taxpayers until they failed, and then taxpayers bailed them out.
• The agency’s profit is an accounting fiction. If proper accounting methods are used, Ex-Im costs taxpayers $200 million a year.
• If it’s profitable, it should be done by the private sector.
• Ex-Im’s costs come primarily in the form of economic distortions, as with most corporate welfare.
4. “If the Bank did not exist, neither would the 2 percent of exports sales it finances,” the exporters assert. They argue that exports would drop by 2 percent if Ex-Im went away. This is fantasy. Many Ex-Im subsidized deals would very clearly happen if Ex-Im went away. For instance, when Caterpillar sells equipment to a subsidiary that exclusively rents out Caterpillar equipment, that’s a deal that would have happened anyway. A study in Germany found that 80 to 85 percent of the exports Germany financed with its Ex-Im either would have happened anyway, or displaced other exports that would have happened. If this holds for the U.S. Ex-Im, killing the agency would reduce exports by less than half a percent.
5. Exporters point out that Ex-Im’s default rate is very low. Again, Fannie and Freddie were raking in the bucks until they weren’t.
6. Exporters point to foreign Ex-Im banks to justify U.S. Ex-Im. But foreign Ex-Im banks point to the U.S. Ex-Im to justify their subsidies. And U.S. Ex-Im actually subsidizes the very foreign governments we’re supposedly competing against, including two recent $18 million loan guarantees to the Export-Import Bank of China. The CEO of the Nigerian Export-Import Bank has encouraged the U.S. to reauthorize Ex-Im, with which it’s in a “collaborative relationship.”
7. Ex-Im supporters point out that China is increasing its exports subsidies. China harms its economy with its export subsidies. According to one study, “if China were to stop using pure-exporter subsidies it would experience a welfare gain of approximately 3 percent (in terms of an increase in real income).”
8. The Ex-Im lobby says Ex-Im only steps in where private financiers won’t. If true, that would indicate that banks see these loans as not creditworthy — the risk on these loans outweighs the expected benefits. But private credit insurance exists. In fact, private credit insurers are rooting for Ex-Im to go away so that they can get its business.
9. Ex-Im supporters say it’s a myth that “Ex-Im puts taxpayers on the hook for subsidized loans to wealthy foreign buyers, which includes foreign governments.” But that’s actually a very accurate description of Ex-Im. Pointing out that the default rate has been low until now isn’t a refutation.
10. The Ex-Im lobby says the agency doesn’t “benefit some U.S. companies at the expense of other U.S. companies.” But it clearly does. Delta Air Lines suffers when its foreign competitors get subsidized Boeings. When Miss Jenny’s Pickles gets subsidies, her competitors suffer. When government drives up foreign sales of gas-powered-turbines, that shrinks the supply available for domestic sales, thus increasing costs on domestic consumers.
11. Ex-Im supporters say Ex-Im shouldn’t use Fair Value Accounting because Ex-Im is different. The Congressional Budget Office disagrees, saying that current Ex-Im accounting methods “do not provide a comprehensive measure of what federal credit programs actually cost the government and, by extension, taxpayers.”
12. Subsidized exporters say opponents are simply “using this debate as a fundraising tool.” This is bizarre. A lobby made up of companies that get export subsidies is assigning evil profit motives to those who support free enterprise.
