Export-Import Bank defenders deploy worthless numbers on job creation, bogus profit claims, empty scare tactics about how Boeing will die, and now, spooky stories about significant drops in exports resulting from killing Ex-Im.
Ex-Im defender Tony Fratto has written a post about how bad a 2 percent drop in exports would be. Read Fratto. His premise is that killing Ex-Im would reduce U.S. exports by 2 percent. Where does he get that idea? From the fact that Ex-Im supports about 2 percent.
The hidden logic here: Every single export subsidized by Ex-Im is an export that wouldn’t happen without Ex-Im. Further — these Ex-Im-subsidized exports don’t displace any other U.S. exports.
There’s no way this is true. The academic literature on this suggests that a large majority of exports that receive government-backed financing would happen anyway without the financing. This study found that Hermes, Germany’s version of Ex-Im, financed “about 3 percent of exports” and that “trade creation due to Hermes therefore amounts to at most 0.52 percent of total German exports.”
In other words, about 80 to 85 percent of Hermes-subsidized exports would have happened anyway. If this carries over to the U.S., then killing Ex-Im would reduce exports by about 0.333 percent.
This means that most of the exports that get export subsidies would have happened anyway, and the subsidies basically amount to added profits for the foreign buyers, the Wall Street banks that get the guarantees and some of it is gravy for the exporter.
Further, a 0.33 percent reduction in U.S. exports wouldn’t reduce the U.S. economy by 0.33 percent. Some of the Wall Street financing that went to the Ex-Im-backed exporters would go to non-export businesses, which also create jobs and spur the economy. Some domestic businesses would see their costs fall for, say, farm equipment or jumbo jets, as they wouldn’t be competing for supplies with subsidized foreign buyers — these lower costs will help these U.S. businesses hire more and grow more.
On net, the difference would be that the market would allocate the resources that previously the Ex-Im Bank was allocating. Which player do you think will bring about more economic efficiency and growth?
