How the U.S. Export‐​Import Bank Taxes Florida Manufacturers, Workers

This article appeared in The Tampa Tribune on March 18, 2015.

If you count yourself among the majority of Americans fed up with the unsavory, business-as-usual, back-room dealing that continues to define Washington, take heart in the fact that the charter of the scandal-prone U.S. Export-Import Bank is set to expire on June 30. If you are among the misinformed or privileged few who support the Bank's reauthorization, how do you justify the collateral damage Ex-Im inflicts on companies in Florida and across the country?

Ex-Im is a government-run export credit agency, which provides below-market-rate financing and loan guarantees to facilitate sales between U.S. companies and foreign customers. In 2013, roughly 75 percent of Ex-Im's subsidies were granted for the benefit of just 10 large companies — including Boeing, Bechtel, and GE — that could easily have financed those transactions without taxpayer assistance.

Supporters characterize the bank as a pillar of the economy, undergirding U.S. export sales, which allegedly create more and higher-paying U.S. jobs. But a fatty sheath of willful ignorance has insulated the Bank from the scrutiny it deserves. Like all Washington subsidy programs, Ex-Im gives to the few but takes from the many.

When the government subsidizes your competitor's sales but not yours, you are made worse off because your competitor can now offer lower prices or better sales terms. Call these the “intra-industry” costs.

Likewise, when the government subsidizes your suppliers' sales to your competitor, you are made worse off because your competitor's costs are artificially reduced, enabling him to charge lower prices or offer better sales terms than he could without the subsidy. Call these the “downstream” costs.

Ex-Im's management and its Washington-savvy supporters have been running a shell game, dazzling Congress with the shiny new export sales it finances, while drawing policymakers' attention away from the costs those activities impose on everyone else. Last year, Delta Airlines finally had enough and complained about Ex-Im loans to Air India, which were granted to enable the foreign carrier to purchase aircraft from Boeing. Delta officials demonstrated how those taxpayer subsidies, made for the benefit of Boeing's bottom line, put Delta at a competitive disadvantage by reducing Air India's capital costs, enabling it to lower fares and compete more effectively with Delta for international travelers.

Why should taxpayer dollars be used to promote the interests of one U.S. company over another? The problem isn't limited to Delta. A recent Cato Institute study estimated the net costs imposed on firms in downstream industries on account of Ex-Im's subsidies to firms in supplier industries to be $2.8 billion per year, and that firms in 80 percent (189 of 237) of U.S. manufacturing industries incur costs that exceed the total value of Ex-Im subsidies they may receive. In other words, the average firm in four of every five manufacturing industries is made worse off by the Export-Import Bank.

Florida is home to thousands of companies in industries that have been victimized in precisely the same manner as Delta. Florida's manufacturers of aerospace products, automobile parts, computer network equipment, electrical products, machinery, semiconductors, telecommunications equipment and more can be counted among the victims because their suppliers secured Ex-Im dollars to subsidize sales to foreign customers. The Jacksonville-based transportation equipment manufacturer Unison Industries, with over 1,300 workers; environmental controls producers Southern Environmental in Pensacola; search and navigation equipment manufacturer Tektronix Service Solutions, with nearly 1,000 employees in Orlando; and communications equipment producer Telecom Source, with 500 workers in Miami, are just a few examples of Florida businesses that bear the costs of Ex-Im's subsidies.

According to the Cato Institute study, the five broad manufacturing sectors incurring the largest downstream costs from Ex-Im's subsidies account for 36 percent of Florida's manufacturing economy. Included among the top 10 most heavily burdened manufacturing industries are Florida's first-, second-, third-, and fifth-most important manufacturing industries: computers and electronics; food, beverage and tobacco; chemicals; and other miscellaneous manufacturing, respectively.

The Export-Import Bank temporarily benefits some companies in a conspicuous manner. But it does so by quietly burdening often unwitting American companies in downstream industries. Delta and some others have cried foul. It's time for Florida's business victims to speak up as well.

Daniel J. Ikenson

Daniel J. Ikenson is director of the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies and author of the study: “The Export Import Bank and Its Victims: Which Industries and States Bear the Brunt?”