“Instinctively, you would say, ‘Isn’t that a ridiculous thing?'” President Trump said this week of the Export-Import Bank, which extends taxpayer financing to foreign companies if they buy American goods. “But actually, it’s a very good thing,” he concluded.
This was a 180-degree turn since candidate Trump called Ex-Im unnecessary “featherbedding” for big exporters who can find their own financing.
Budget chief Mick Mulvaney, himself an Ex-Im opponent, agreed that Ex-Im “will continue to exist.” He said Trump will fill out Ex-Im’s five-person board, which currently lacks a quorum, returning it to full functionality.
Mulvaney said Trump is set on “putting some people on there who are reformers.”
If Trump insists on keeping Ex-Im alive, he needs to make sure his “reformers” institute reforms that have real teeth, taking into account the fact that Ex-Im doesn’t boost the economy the way its champions and beneficiaries claim.
Trump’s arguments for Ex-Im are based on the economically and factually flawed claims peddled by the manufacturers, bankers and lobbyists who profit from the agency.
The agency makes a profit, Trump told the Wall Street Journal on Thursday, because other countries use it, and small businesses depend on it.
Making a profit isn’t a sign of a good government agency. It’s a sign that the agency is doing something the private sector could do and would do absent Uncle Sam’s subsidized presence.
Also, even according to the Ex-Im’s own annual reports, it doesn’t mostly counter foreign subsidies. It often actually subsidizes foreign governments’ state-owned banks. Twice in recent years, for instance, Ex-Im has financed the Export-Import Bank of China.
Trump also spoke of small businesses that benefit from Ex-Im financing. In a normal year, though, small businesses account for just 20 percent of all the financing Ex-Im doles out, while 40 percent goes to subsidize Boeing’s exports.
We use that “normal year” qualifier for a reason. The last two years haven’t been normal. Congress let Ex-Im’s authorization expire in June 2015, and even though Democrats and half the GOP resurrected Ex-Im in the fall, the board has lacked a quorum since then. Without a quorum, Ex-Im can’t approve deals greater than $10 million.
Without the jumbo jet and power plant deals, Ex-Im has become what its political friends have always claimed it to be — a small-business agency. It financed $5 billion in exports last fiscal year, and a slight majority of that was for small exporters. Gone were the long-term loans and guarantees that almost exclusively benefit the likes of Boeing and General Electric. Instead, the agency focused on working-capital guarantees and small-business lines of credit.
In other words, instead of “featherbedding” J.P. Morgan’s financing of Boeing’s sale to Air China, Ex-Im was trying to help small businesses expand into new markets. This is still bad economics when you consider the big picture. It steers banks towards financing exports instead of what the banks may feel is more economically promising. But a smaller Ex-Im that focuses on smaller business creates a much smaller net drag on the economy.
If Mulvaney is serious, and the administration really does want to reform Ex-Im, there’s a template available: Keep the bank largely in its shrunken form serving mostly small businesses.
Instead of the 20 percent small business threshold, create a 50 percent threshold. Set a maximum deal size in law at $10 million. And cap annual authorizations at $5 billion.
Treasury Secretary Steve Mnuchin hinted in this direction. “There’s a lot of concerns historically about the Ex-Im Bank and — is it just subsidizing certain large corporations?” Mnuchin said on CNBC in February. “And that’s not something we’re interested in doing.
“To the extent we think the Export-Import Bank can be competitive in helping small and medium-sized businesses export, that’s something that’s important.”
The Trump administration could make this major reform on its own. If it insists on filling out the board, all three appointees should buy into this idea of a smaller Ex-Im.
Other reforms are begging to be made. Ex-Im should stop extending subsidies to state-owned companies or guarantee loans at state-owned banks. A vast majority of Ex-Im’s China deals involved either a state-owned buyer or state-owned lender. Subsidizing China’s Five-Year plans isn’t a good use of American tax revenues. Nor is saving a few bucks for Saudi Arabia’s royal family.
Ex-Im also needs to stop hurting one American company in order to help another. It has subsidized foreign factories, mines, and airlines that directly compete with American factories, mines, and airlines. Nominally, there is a review process to prevent such destructive picking of winners and losers But it is rigged. A reformed Ex-Im would by default side with any American business objecting to a subsidy for a foreign competitor. That would put “America First,” to coin a phrase.
