Export-Import Bank

Congress Just Restored the Export-Import Bank. It Still Deserves to Die.

The evidence against the agency is overwhelming.

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When Congress allowed the Export-Import Bank's charter to expire in July 2015, it looked like a victory against crony capitalism.

Congress, it seemed, had finally come to view the federally backed financial institution as a liability rather than as a boost to business. And when the bank was reauthorized by Congress several months later, it was given a more limited role. It saw a cut of 85 percent in its funding and, because the bank was reauthorized without a quorum of board members in place, it was prevented from issuing loans above $10 million dollars. It wasn't total victory, but it was progress.

That changed last week when both Republican and Democratic senators voted to restore the bank's lending authority by approving three members to the board. Even though I expected this to happen eventually, I was still shocked by this vote.

With so much evidence that the Ex-Im Bank—an agency that provides financial support to foreign and domestic companies to boost U.S exports— was nothing more than corporate welfare for large domestic firms and so many foreign state-owned companies, including Chinese ones, and with no impact on net exports, I assumed members of Congress would feel embarrassed to vote to restore the funding. I was wrong.

But the evidence that the Ex-Im Bank serves no productive function except to enrich large corporations continues to be overwhelming. Congress may have given the bank new life, but it still deserves to die.

In 2014, the last year it had a full quorum on its board, and the last year it could give loans larger than $10 million, the bank's funding was about $21 billion. By 2018, that figure had been reduced to $3.6 billion in real terms. It's worth looking back at what the bank was doing when it was fully funded.

In the 2014 fiscal year, the Ex-Im Bank was the quintessential corporate welfare agency. On the domestic side, 65 percent of Ex-Im activities benefited 10 giant American companies, including GE and Caterpillar. Boeing alone benefited from 70 percent of the loan-guarantee program and 40 percent of the bank's overall activities ($48.4 billion), earning Ex-Im the nickname "the Bank of Boeing."

On the foreign side, Ex-Im's beneficiaries were similarly well-funded. A vast majority of these companies had ready access to capital, and were as large as the domestic beneficiaries. These clients belonged to the Who's Who of the airline industry, with names like Emirates Airline, Lion Air, and Ryan Air. Also among the foreign beneficiaries was Pemex, the Mexican state-owned oil and gas company.

In those days, then, the Ex-Im Bank was in the business of big business. But after the lending cap was put in place due to the lack of board members, that changed. In 2018, the share of large firms benefiting from Ex-Im dropped from 75 percent to 34 percent. Boeing's share of the benefits dropped to zero.

Proponents of Ex-Im have argued that it's an essential lifeline for the companies it lends money to. Yet all of these companies have been doing just fine without Ex-Im. Indeed, many of them had their best year ever in 2018. That includes Boeing, which saw its sales skyrocket over four years without the bank's assistance.

As the federal government got out of the export lending business, many big private players filled the gap. It was a small gap to fill in the first place, since in 2014 over 98 percent of exports took place without any Ex-Im backing.

You would think that members of Congress could have concluded that these companies didn't need the boost. Export financing was flourishing on its own.

You would be wrong, as the Senate just voted to restore the Bank of Boeing to its full potential. This was a vote to put crony capitalism back in business.

It was also a vote to give an unearned bonus to America's biggest economic rival.

Back in 2014, China was the top beneficiary abroad of Ex-Im activities. About 11 percent of all Ex-Im activities (or $2.3 billion) benefited China. In 2018, that share dropped to 1 percent—or $34.2 million. Of all the Chinese companies that benefited, Air China received the most financial backing from the Ex-Im Bank. This should make you strongly reconsider the Trump administration's argument that we need Ex-Im to return to its 2014 days in order to fight China.

Indeed, in 2014, the top 10 state-owned recipients of Ex-Im financial aid totaled 30 percent of all Ex-Im activities, or $5.9 billion in deals backed by taxpayers. The U.S. government was backing billions in deals to boost companies owned and operated by foreign rivals. In 2018, these numbers dropped, respectively, to 0.5 percent and $16.6 million. The bipartisan group of lawmakers who restored Ex-Im's board last week appear to want to go back to backing state-owned enterprises.

Supporters of Ex-Im have sometimes argued that it helps encourage exports. Yet the drop in funding between 2014 and 2018 had little to no impact. In 2018, less than 0.3 percent of exports were backed by Ex-Im, yet overall exports continued to grow from $2.37 trillion in 2014 to $2.55 trillion in 2018.

During the last four years, as Ex-Im's funding and lending capacity were sharply limited, China lost most of its American subsidies, as did most state-owned businesses. American exports thrived, and American businesses that had been supported by the bank had record years. Yet the Senate just voted to go back to the way things were before. That is shameless, pointless, and wrong.

NEXT: Stung by Tariffs, Farmers Seek Bailouts and More Protectionism

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  1. America needs the Ex-Im Bank like it needs the Federal Reserve Bank.
    In other words, we don’t need any more banks especially those who answer to no one except to the politically connected, their bought politicians and their cronies.

    1. No we need at least one more bank, the Post Office Bank.

      https://reason.com/2019/05/10/post-service-lost-2-billion-in-three-months/

      An overhaul of banking and credit card systems floated this week by Sen. Bernie Sanders (I–Vt.) and Rep. Alexandria Ocasio-Cortez (D–N.Y.) would effectively convert the Post Office into a bank of sorts, offering checking and savings accounts.

      1. I wouldn’t mind seeing the post office setting up internet service for free (ad driven) email and paid access to the web. Plenty of physical locations to put up cell towers.
        They should also offer money transfers like Paypal.
        The PO wanted to save money by stopping Saturday delivery. The Congress put an end to that. Why? Who knows? As far as banking goes the PO would be losing a lot more than what it does now. Maybe Bernie and AOC should do what they do best, bring 19th century technology to the 21st. USPS telegraph service anyone?

  2. Where are all the Trumpfans on this one?

    1. The Export-Import Bank needs to be executed.

    2. The ex-im needs to die. I would say a slow death, but that would just waste more money. I guess with Boeing’s woes because of their planes falling out of the sky, they needed some help

    3. Here, since you cant even read the first line. “Congress Just Restored the Export-Import Bank”

    4. Valkanis
      May.14.2019 at 3:28 pm
      “Where are all the Trumpfans on this one?”

      Not sure, but it’s obvious the TS-aflicted one has shown up.
      Fuck off and die.

  3. But the Ex-Im is a bulwark of American business!! Without it, NOBODY would buy American products. Surely you can see that! (sarc-font off)

  4. Personally, I like that the subtitle to the article says, “The evidence against the agency is overwhelming.”. As though the government cared about the evidence one way or the other with respect to anything that it does. If evidence really did matter, one might expect government to look much different than it does. But politics and power matter more.

  5. Even though I expected this to happen eventually, I was still shocked by this vote.

    Me too. I figured “eventually” would be about 18 months, tops.

  6. Well, of course Congress voted to restore it to full crony capacity. They receive lots of their election campaign funding from the corporations which receive funds from the Ex-Im. In other words, the taxpayers foot the bill for our senators’ and representatives’ elections when Congress authorizes Ex-Im to give huge amounts of taxpayer money to the corporations which then kick back a lot of it to the Congress who voted for it. It’s a win-win for Congress and their crony capitalist puppet masters. Only all 330 million of the rest of us lose. Of course this can only occur because the vast majority of the public has absolutely no clue (or doesn’t care) about the scam.
    This is why the US is no longer a Constitutional republic. It is a politician-corporatist oligarchical duopoly parasitizing the public.

  7. […] My intrepid Mercatus Center colleague Veronique de Rugy continues to fight the good fight against th…. A slice: […]

  8. You make the argument for businesses and the US economy not needing EX-IM, which may be true, but you do not get into what the operations of EX-IM actually cost the US taxpayer. It would be interesting to see what these loans and guarantees are actually costing us.

    Listing out the major companies loans are one point but these major companies are more likely to repay their debts than a no-name small business, so which of these companies are not paying their debts and making the US taxpayer cover the costs?

  9. In the 2014 fiscal year, the Ex-Im Bank was the quintessential corporate welfare agency.

    Actually it is just about the most irrelevant example of cronyism in the US. Apparently though it is the only form of cronyism that doesn’t benefit the Mercatus/Reason donors so its an easy target to oppose in order to acquire the illusion that modern ‘libertarians’ are opposed to cronyism.

    Boeing/etc are getting a crony benefit if a)ExIm offers better trade credit insurance terms than would be offered by the very tiny handful of private trade insurers and b)if the US govt doesn’t bail out those insurers when SHTF on the political risks they insure. History proves that govts ALWAYS bail out trade credit/finance when SHTF. It’s been a major cause of wars and you can bet the Reason/Mercatus crowd will be utterly silent if/when that happens.

    But hey – keep pounding the snot out of that pinata until it begs for mercy.

  10. The Deep State it is equally Rino-can and DemocRat.
    Term limits.
    Convention of States.
    Before it’s too late.

  11. So close to ending it but it goes to prove Reagan’s quote “there is nothing so permanent as a temporary government agency”

  12. “You would think that members of Congress could have concluded that these companies didn’t need the boost. Export financing was flourishing on its own.”

    No, I would think that most members of Congress don’t care about the merits of any program as long as they can swap tax money for campaign contributions without the corruption being too obvious.

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