Commentary

Dump The Export-Import Bank

Last May, the president of a prominent Washington think tank told a Senate committee that the U.S. Export-Import Bank needs a bigger budget because foreigners are “eating our lunch.” He was followed on the panel by two recipients of Ex-Im money who — surprise! — confirmed that they just couldn’t cut it without subsidized export financing. With the Ex-Im Bank’s temporary authorization expiring this month, Congress again faces the question: Is this agency necessary? The Bank supposedly benefits the country in three ways: First, by “leveling the playing field” for U.S. exporters when their foreign competitors receive government support. Second, by creating jobs. And third, by “improving” the U.S. trade balance.

None of those claims holds up under scrutiny.

For starters, foreign exporters are hardly “eating our lunch.” The United States exported roughly twice as much in 2000 as it did in 1990. By comparison, Germany’s exports were 34 percent higher, Japan’s 66 percent higher, the U.K.’s 51 percent higher, and France — by most accounts a generous user of export credits — posted a gain of only 36 percent. The fact is that U.S. exporters don’t suffer much from subsidized competition. Indeed, only a third of Ex-Im Bank financing requests — representing a fraction of one percent of all U.S. exports — even allege that they’re in response to foreign subsidies.

Only Canada managed to surpass the United States in terms of relative export growth. Yet according to a 1997 GAO analysis of official export support, Canada and the United States subsidized only 2 percent of their exports. By contrast, Japan’s export credit agencies supported 32 percent of total exports, France’s supported 18 percent, and Germany’s 9 percent. In other words, the relationship between generous government export supports and the overall performance of national exporters has not fit the pattern predicted by the Ex-Im Bank’s supporters: Countries with a relatively small percentage of subsidized exports have been the strongest exporters. Another myth is that the Ex-Im Bank creates jobs. In reality, it often simply displaces private-sector sources of finance. There’s no reason to think that the Ex-Im Bank knows how to better use financial resources than the consumers, investors, and businesses those resources are taken from. In fact, by overriding the market, the Bank directs credit to less efficient uses, creating distortions in the national economy, and imposing opportunity costs that are surely higher than the added value of the Bank’s intervention.

Assume that the Bank succeeds in raising the level of U.S. exports in some particular year. What happens then? Foreign buyers must have U.S. dollars to complete their purchases. They obtain those dollars by buying them in international currency markets, thus bidding up the price of dollars. The stronger dollar does two things. It makes exporting more difficult for producers that do not have subsidized financing, thus reducing somewhat the total amount of non subsidized U.S. exports. A stronger dollar also makes imports more attractive to U.S. consumers. The net effect is that imports rise right along with exports. Some jobs are created in the export sector, while some are lost to import competition and some to reduced sales among unsubsidized exporters. The cumulative impact on employment is indeterminate and weak.

The same analysis holds for the trade deficit. And even if subsidized export credit could alter the trade balance, it is far too small to make any serious impact. Only about 1 percent of all U.S. goods and services exports were backed by the Ex-Im Bank last year. Thus, for reasons of size alone, those who mistakenly view the U.S. trade deficit as a sign of weakness rather than as a sign of strength should not expect the Ex-Im Bank to correct the perceived malady.

In short, none of the reasons offered for the Bank’s continued existence is convincing. Private credit markets are far deeper and are more accessible than during the Great Depression when the Bank was founded. Generous export subsidies have not translated into better overall export performance for those countries that offer them. Export subsidies don’t increase employment nor do they have any significant impact on the trade balance. Finally, it is neither fair nor constitutional that taxpayer dollars are being used to support particular businesses, including Enron, GE, and numerous other multibillion-dollar beneficiaries. Indeed, in FY2000, the top 10 recipients of the Bank’s loans and long-term guarantees were large corporations that got 86 percent of those services. Definitely an agency whose time has passed.

Aaron Lukas is an analyst at the Cato Institute’s Center for Trade Policy Studies. Ian Vásquez is the director of Cato’s Project on Global Economic Liberty. They are co-authors of the new Cato study, “Rethinking the Export-Import Bank.”