Well, besides putting U.S. taxpayer resources at risk and fostering too cozy a relationship between government and certain businesses, Ex‐Im victimizes untold numbers of companies and their workers by effectively taxing their operations, while subsidizing their foreign competitors. These obscured consequences of a government program that presents itself as a costless public good warrant closer examination.
As politicians and big‐business lobbyists portray it, there is no downside to reauthorizing the charter of the Export‐Import Bank (Ex‐Im) of the United States. The bank provides low‐rate financing to foreign customers of U.S. companies, which facilitates the objective of increasing exports and creating jobs. Everybody wins, so what’s not to like?
When Ex‐Im provides financing to a foreign commercial airline — say Air India — so that it can purchase aircraft from Boeing on terms more favorable than the market permits, Air India and Boeing can raise their glasses and toast the U.S. taxpayer for filling a gap that might otherwise prevent the transaction or make its terms less favorable to both companies. Air India and Boeing both benefit.
But what about Air India’s U.S. competitors? How does Ex-Im’s role in the transaction affect them? An honest assessment requires looking beyond the immediate effects to obtain a more complete picture of the benefits and costs of Ex-Im’s involvement. Such an assessment leads to the inescapable conclusion that the subsidized transaction between Boeing and Air India makes U.S. carriers worse off. When Air India can purchase critical capital equipment at more favorable financing rates than, say, Delta Airlines, then Air India is conferred the benefit of lower costs, which enables it to compete more rigorously with Delta for air travelers on particular routes. Meanwhile, if Boeing is busy building and making deliveries for an artificially inflated global market, the prices for its domestic customers will also be artificially inflated. Thus, Ex‐Im takes from Delta and gives to Boeing, quite literally “picking winners and losers.”
Delta’s complaint about the effects of Boeing’s subsidized sales to Air India is a real example. There are others. Cliffs Natural Resources, a mining company that operates three iron‐ore mines in Minnesota and one in Michigan, objects to Ex-Im’s $694 million financing of an Australian iron mine’s purchases of U.S.-made bulldozers and trucks from Caterpillar, locomotives from General Electric and drilling rigs from Atlas Copco. They have a point. U.S. taxpayers are subsidizing the costs of iron ore and other mineral extraction in Australia, which increases current and future supply, and drives down prices, which hurts U.S. mines and U.S. steelmakers, who must compete with Chinese steelmakers — the primary beneficiaries of cheap Australian iron ore.
But this adverse downstream effect is not exceptional. It is the rule. Consider that Ex‐Im subsidized $168 billion of exports sales between 2007 and 2013, through loans, loan guarantees, and the provision of insurance and working capital. Nearly two‐thirds ($107 billion) of those expenditures were for the purpose of facilitating exports of manufactured products: Aircraft accounted for a whopping $58 billion of Ex-Im’s expenditures; machinery sales accounted for $22 billion; $8 billion went to grease exports of computer and electronic equipment; $7 billion was devoted to metal products; $5.4 billion subsidized sales of transportation equipment (excluding aircraft) and chemical exports gobbled up $2.3 billion of Ex‐Im largesse.
Who bought these products? Generally, the customers were foreign manufacturers, who typically incorporate those U.S. wares as inputs or capital equipment in their own production processes. U.S. companies are then forced to compete at home and abroad with these foreign beneficiaries of Ex‐Im financing.
The rhetoric that subsidizing U.S. export sales bolsters U.S exports and creates jobs ignores the secondary effects, which must be counted. What about the revenues of U.S. firms that compete with the foreign beneficiary of the subsidized loan? What about employment at those firms in those industries? Won’t both likely suffer?
Perhaps the most commonly cited rationale for the bank’s continuation is that U.S. export credit largesse pales in comparison to other governments’, and providing financial support is the least the U.S. government can do to try to level the playing field. But by attempting to level the playing field between big U.S. exporters and their subsidized foreign competitors, Ex‐Im necessarily “unlevels” the playing field between those two sets of U.S. companies: the beneficiaries and the victims. That is an improper role for government.
Subsidizing upstream firms’ foreign sales — it turns out — has the same adverse downstream impact as does taxing imported intermediate goods. Ex‐Im operates analogously to the U.S. sugar program, steel tariffs and the Jones Act (which severely restricts shipping competition). It bestows benefits on select companies (usually those with smoothly functioning K Street operations) at the expense of less‐connected U.S. firms.
Some people in Washington will shrug their shoulders and say, “Well, that’s how business is done. Grow up and get used to it.” But that kind of thinking just ensures that political considerations trump economic ones, which encourages the diversion of more resources from economic to political ends. That may be good for those of us who own homes in Washington, but it is manifestly corrosive to our economic system.