Is the Export-Import Bank More Important than Economics?

There are many arguments against reauthorization of the Export-Import Bank, a government-run bank that helps finance export sales at below-market rates. Some of these arguments include that it hurts U.S. businesses, that it provides corporate welfare for politically connected companies, and that it distorts and politicizes the U.S. economy. But the New York Times editorial board thinks all those arguments are “ridiculous,” while also agreeing with them:

In one of their odder quests, some Tea Party members have decided that the United States must shut down the Export-Import Bank of the United States, an obscure but important federal agency that helps American businesses sell their goods abroad.

The bank provides loans and loan guarantees to foreign businesses to help them buy American products and services. In an ideal world, businesses would obtain such financing from privately owned banks. But most governments around the world support exports in similar ways, and if the United States dismantled the bank unilaterally, as some lawmakers are advocating, American companies could lose billions of dollars in overseas orders and decide to move their operations to other countries that provide generous export financing. [emphasis added]

The New York Times recognizes that getting rid of the Ex-Im Bank would bring us closer to realizing an ideal world, but they nevertheless support the bank to prevent some U.S. firms from losing businesses to foreign competitors. It’s difficult to read this as anything but a defense of crony capitalism. Indeed, the Times’ Neil Irwin wrote a defense of Ex-Im depressingly titled “Why We’re All Crony Capitalists, Like It or Not.”

There will always be challenges for U.S. companies in a global economy. Small, targeted amounts of mercantilist industrial policy like Ex-Im subsidies will not create growth regardless of the character of those challenges.  In other words, subsidies to counteract subsidies are not more beneficial to our economy  than subsidies to counteract relative disadvantages in climate, terrain, or workforce productivity. 

The most compelling take down of the “Ex-Im is necessary for competitiveness” argument may have come from leftist economist Dean Baker, who thinks “free traders” who support the Ex-Im Bank are being awfully hypocritical.  He notes the economic case against subsidies—“by diverting capital to the winners picked by the Ex-Im Bank, we are raising the price of capital for other firms”—and questions the motives of Ex-Im supporters who understand that consequence. Specifically in response to Irwin’s piece, Baker writes:

When Irwin tells us that we have to be crony capitalists “whether we like it or not,” why don’t we also have to be crony protectors of workers’ livelihoods? It seems that there is a very fundamental inconsistency here. When it comes to business interests we are prepared to throw the economics textbook theory in the garbage, but when the question is worker’s jobs, that textbook is the Bible.

I don’t think the generally pro-free trade New York Times wants to throw workers under the bus or help big business, but Baker is right that the argument of Ex-Im defenders that we need subsidies to counteract foreign competition could just as easily be used to justify tariffs or any other form of protection in countless other situations. Does every foreign government subsidy warrant a protectionist response? If not, why is the Ex-Im Bank the protectionist program so many “free traders” want to keep?