Why Stop at $20 Billion, Senator?

Congressional Quarterly reported on Monday [subscription required] that Sen. Dianne Feinstein (D, Calif.) has called for $20 billion worth of increased lending to U.S. manufacturers through a new targeted program of the Export-Import Bank of the United States (“the Ex-Im Bank”).

Sen. Dianne Feinstein called Monday for a new initiative to promote lending to U.S. manufacturers in an effort to spur job creation and shrink the U.S. trade deficit.

The California Democrat proposed authorizing the U.S. Export-Import Bank to use $20 billion of unobligated authority to lend directly to domestic manufacturing companies that are competing with foreign competitors subsidized by their own governments…

Feinstein said her proposal would not be costly because of the offsetting collections priced in to the structure of the bank’s transactions.

To be eligible for the lending program, companies would be required to demonstrate the number of jobs that would be created; that they are competing directly with subsidized, foreign firms; that the project would contribute to the expansion of the domestic workforce and manufacturing capability; and that it would have a net positive impact on the U.S.trade balance.

“In today’s global economy, the federal government must more actively partner with the business community,” Feinstein wrote. “Manufacturing is a proven source of well-paying jobs for those of all educational levels and we must have a thriving manufacturing sector in order to address our chronic trade imbalance and return our economy to sustainable growth.” [emphases added]

Where to begin? First, there is no earthly reason why “we must have a thriving manufacturing sector in order to address our chronic trade imbalance.” We could bring our trade account into balance through services or agricultural exports if “addressing our chronic trade imbalance” is what keeps you awake at night. (Here’s more on the trade deficit from my colleague Dan Griswold.)

But let me turn to Senator Feinstein’s rosy view of the Ex-Im Bank. My recent trade policy analysis, “Time to X Out the Ex-Im Bank,” addressed many of the rationalizations that the bank’s supporters routinely trot out to justify the use and redirection of resources toward corporate welfare. I question why taxpayer dollars should be put at risk supporting some of America’s most profitable countries (does Boeing really need your money?) and draw attention to the inefficiencies and distortions caused by export credit programs. Senator Feinstein shows a narrow understanding about the “cost” of things when she suggests that because Ex-Im is “self-financing” (i.e., its activities are funded out of fees and collections from its previous loans) it is not costly. In theory the government could take 100% of the economy’s production and give all of it away again at “no net cost to the taxpayer” (just like the sugar program!). Could one seriously argue that such an approach would not be enormously costly in terms of economic prosperity  (not to mention, you know, personal freedom and stuff)?

I should point out here that Senator Feinstein is not alone in wishing to direct the activities of the bank toward ends that she deems worthy: the bank operates under various congressional mandates that have little if anything to do with strict financial criteria — for example, requirements that a certain percentages of the bank’s resources go to small- and medium-sized businesses, or toward exports of renewable energy products. Even the bank’s supporters will occasionally argue that the conditions Congress attaches to the bank’s activities sometimes run counter to the bank’s core mission of promoting exports and jobs (now there’s a surprise). I’ll have more on the Ex-Im Bank soon.