Corporate lobbyists, Democratic lawmakers, and Wall Street-type Republicans will all tell you that the U.S. Export-Import Bank helps U.S. companies export. They’ll castigate subsidy opponents as free-market ideologues who don’t care about actual U.S. companies.
But here’s the thing: The best economic research debunks all of their arguments.
Economists Natasha Agarwal and Zheng Wang have conducted the most detailed and meticulous studies ever of government-backed export finance, the kind that Ex-Im provides.
Ex-Im subsidizes U.S. exporters by extending taxpayer-backed loans or loan guarantees to foreign buyers of U.S. goods, primarily Boeing jets. The agency’s charter expires at the end of September, and Democrats and the swampier folks in the Trump White House are pushing for reauthorization.
These subsidy advocates assert that Ex-Im creates jobs. They say it again and again, without evidence, and much of the media believe it without evidence. “America’s jobs are being lost,” White House trade official Peter Navarro complained when Ex-Im was hobbled, “by the hundreds of thousands.”
Subsidy champions get away with these unfounded claims because a credulous media believes them. “I get philosophical opposition to #ExIm,” tweeted the New York Times reporter who covered Ex-Im during the last major debate over it, “but how could ending loan guarantees for US exporters not cost jobs?”
Great question. With just a tiny bit of economics, it’s easy to posit many ways in which ending these subsidies might not cost jobs. For one thing, subsidizing exports might not really result in more exports, but only different exports. Or maybe Ex-Im doesn’t change the makeup of exports that much, it just pads profit margins. Or maybe it shifts financing from domestic sales to exports. And maybe, just maybe, the private sector would allocate financing more efficiently than the bureaucrats on Vermont Avenue.
Whatever theoretical mechanism you prefer, the empirical data all suggest that Ex-Im does not significantly boost exports, especially not among small businesses.
Economists Agarwal and Wang studied detailed data on how much certain U.S. industries exported to certain countries, and how much Ex-Im financing appeared to affect those exports. “In a given year,” the economists found, “EXIM authorisations do not have a sizable impact on U.S. exports with its partner countries.”
In short, more export subsidies from Ex-Im doesn’t significantly yield more exports.
The economists got much more granular. Ex-Im defenders always tout the agency as helping small businesses export. But this study found that “EXIM authorisation to small businesses does not have an impact on their exports. On the contrary, it is the businesses that are not classified as small by the Bank that witness a positive impact of EXIM authorisation on their exports.”
Translated: The main effect of Ex-Im is to subsidize Big Business. “EXIM support is not a lifeline to small businesses’ exports as claimed by the EXIM Bank proponents,” Agarwal and Wang wrote.
How could this be? Perhaps Ex-Im simply drives a small business to Ex-Im-favored exports instead of others. Perhaps Ex-Im picks winners and losers, and so some U.S. small businesses win export sales at the expense of others.
Also, there’s the fact that much of the “support” Ex-Im brags about for small business never comes into being. More than 40% of small businesses with export-insurance plans from Ex-Im in 2016 never got coverage on a penny of exports, it turns out. What happens is that Ex-Im brokers rope small businesses into Ex-Im plans, but then they never export anything that gets coverage. This allows Ex-Im to boost its small-business numbers and justify its existence to Congress and to credulous journalists.
The Export-Import Bank, then, has only a tiny effect on exports. It is entirely for Big Business exports. This hardly seems like the sort of thing that the U.S. taxpayers should be forced to back. Congress could right this wrong by refusing or even just failing to reauthorize Ex-Im.
