Throughout his campaign, Donald Trump promised to revolutionize trade policy for the benefit of American workers and industry. He should begin by stopping the Export-Import Bank from purveying corporate welfare.
Ex-Im is a federal agency established to help American exporters by providing taxpayer-backed financing to governments and businesses in developing foreign markets without access to the necessary means to buy American products. In its youth, Ex-Im did just that and bolstered exports in the interwar period to Cuba, Haiti and Burma. Over the last 50 years, though, it has ventured far from its original purpose and has become a vehicle for ruinous market distortion.
According to the Mercatus Center, some of the largest beneficiaries of Ex-Im financing are companies like Boeing, Bechtel Power, General Electric and Caterpillar — all multinational conglomerates that could conceivably get financing directly from private lenders.
Private lenders are involved in the process, too; many, including Citibank and JP Morgan, are beneficiaries of Ex-Im. When Ex-Im finances transactions, these private lending institutions house the debt and charge interest to their borrowers. Since the loans are backed by the full faith and credit of the American government, the debt is virtually risk-free. In effect, Ex-Im insures that multinational banks and corporations are able to make millions of dollars, while passing on all the risk to American taxpayers.
Enemies of Ex-Im, led by Rep. Jeb Hensarling, R-Texas, have not only been vocal but active in their efforts to cut down the Ex-Im.
In the summer of 2015, Republican legislators refused to reauthorize the Ex-Im’s charter. Supporters of the Ex-Im retaliated with a bill in late 2015 that prolonged the Ex-Im’s authorization into 2019.
Conservatives responded by refusing to confirm new nominees to the Ex-Im’s board — leaving it exactly one board member shy of the three required to approve transactions weightier than $10 million.
Thanks to the efforts of congressional Republicans, the fate of the Ex-Im is in limbo. But now that Republicans control the House, Senate and executive branch, it’s time to pass judgment.
Supporters often tout the idea that the Ex-Im isn’t only costless to taxpayers, but that it’s profitable. This is an accounting fiction. According to the Congressional Budget Office, Ex-Im costs taxpayers around $200 million a year if proper accounting is used.
Similarly, defenders of Ex-Im claim that it benefits the American economy as a whole. A study by the World Trade Organization, though, argues that agencies like Ex-Im likely drag down the American economy. Simply put, subsidizing exports hurts U.S. consumers and the U.S. companies that don’t get subsidies.
Multinational corporations like Boeing and General Electric shouldn’t be given special privileges and access to costly taxpayer-backed funding merely because they’re big and well-connected. American industry is better off when corporations negotiate contracts that figure in the true costs of the risk involved in the transaction.
When risk is obscured by unchecked government financing, corporations have more leeway to commit financial abuse and accept disastrous contracts. To give just one example, an Australian company called NewSat was discovered to have spent Ex-Im funds on extravagant dinners and bonuses instead of purchasing American exports after securing a contract with the bank in 2015.
Ex-Im imposes an unnecessary burden on American taxpayers, impedes prosperity, and subsidizes the profit margins of multinational corporations. In the spirit of his commitment to strengthen American industry, Trump should support congressional efforts to eliminate the Ex-Im, or at the very least return it to its initial function.
Michael Shindler (@Michaelshindler) is an Advocate with Young Voices.
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