As always, Congress is failing at its most important job, which is to actually pass a budget, on time, within the budgetary rules. So, right on time, the House passed a stopgap spending bill that would continue government funding until November 21. The Senate will take it up next week. Included in this bill is a reauthorization of the Export-Import Bank.
The Ex-Im Bank is a mercantilist New Deal–era agency that extends financial products to foreign companies so they will buy American products. It is one of the quintessential examples of cronyism. Before going through a four-year dormant period, the agency’s top beneficiary in the U.S. was Boeing. The company benefited from 40 percent of the agency’s overall activities and 70 percent of its loan-guarantee programs. That’s why we all call it the Boeing Bank.
As the narrative goes, without Ex-Im many foreign companies would buy Airbus rather than Boeing; hence the need for support. This is a weird argument at many levels. First, as a believer that the government’s job is never, ever, ever to prop up private companies, I would say, “And so what?” But in this town, where people believe it is totally normal for Uncle Sam to work overtime so that a company will make extra private profit, that argument doesn’t go very far.
I have others. Doesn’t it bother anyone how little faith in Boeing those who are claiming that without Ex-Im airlines wouldn’t buy Boeing planes have? Effectively what these guys are saying is “This is a bad product that people wouldn’t want without with Ex-Im.” If this is true, why should the federal government ask us to stand behind Boeing?
But I assume even though that’s what they seem to be saying, these supporters don’t believe that Boeing is a bad company. But without acknowledging the contradiction, they somehow assume that Ex-Im financing is a big part of the decision to buy Boeing planes as opposed to Airbus ones.
They make this claim in spite of evidence that even when Ex-Im was fully functioning, it only backed 1 out of 10 Boeing planes sold (that shows that Ex-Im isn’t a necessary condition to sell Boeing planes).
They make this claim even though according to the GAO, roughly before Ex-Im went dormant, some 85 percent of Boeing and Airbus large-aircraft deliveries were not subsidized by any export-credit agencies.
They make this claim even though companies that benefit from Ex-Im buy both Boeing planes and Airbus planes with and without export credit agency (ECA) financing.
They make this claim in spite of the evidence that during the last four years, Ex-Im and other ECAs were unable to extend financing to airlines to buy either planes and yet both companies have continued to thrive and even grow.
They make this claim even though in the last four years, ECA financing for commercial planes has dropped to 4 percent, with 96 percent of the market being private, demonstrating that the government isn’t needed. At the very least, it proves that Ex-Im isn’t just going where the private sector will not go. They believe this even though companies that used to benefit from Ex-Im have said they would be fine without it, and indeed they have been.
The truth is that Ex-Im is in the big business business. A vast majority of its activities take place in higher-income countries and focus on financing large foreign companies with plenty of access to capital for the benefit of large domestic companies. It is also spending a lot of its energy financing deals for state-owned companies. You would think these companies can do fine with the backing of their own government and do not need American taxpayers to back their loans.
And yet here we are today. Some 80 senators — including some who in the past have spoken up against it — and the vast majority in the House of Representatives are eagerly working on reauthorizing this crony agency. They seem uninterested in adopting reforms that would change the way it does business so it stops being a blatant handout to large firms at home and abroad.
If the Ex-Im Bank is authorized without reforms, not only will the agency return to its Boeing Bank days, but all the progress that was made in ending American subsidies to foreign state-owned companies will be scrapped.
That would be a shame. From 2014 to 2018, during the bank’s dormant period, the portion of aid directed to state-owned businesses fell dramatically. In 2014, 29 percent of the bank’s aid was directed to just 10 state-owned enterprises. By 2018 the 10 state-owned enterprises receiving the most from the Ex-Im Bank received only 0.5 percent of the bank’s aid. Just before the bank’s dormant period began in 2014, China was the top destination for aid to state-owned businesses (and for foreign deals too). Over $1 billion of support went to Air China alone. Should we really be subsidizing Air China? If the answer is no, then restoring Ex-Im to its past glories and allowing it to operate in the same way as it was in 2014 is a terrible idea.
Close behind Air China, the next top foreign beneficiary of Ex-Im in 2014 was Petróleos Mexicanos (Pemex). Mexico’s state-owned oil-and-gas company received $1 billion in subsidized financial products from Ex-Im. From 2007 to 2014, Pemex was the single largest foreign Ex-Im recipient, with $8.1 billion of support directed to it, topping the next-highest recipient by more than $3 billion.
Pemex is also known, of course, for its multiple corruption scandals. Yet, I have to ask if this is really the kind of business American taxpayers want to resume propping up through Ex-Im. If the answer is no, then what are legislators doing supporting the reauthorization to Ex-Im as it was? Because I can promise you, without radical reform, Americans through Uncle Sam’s Ex-Im Bank won’t be going back to just propping up Boeing; they will support Air China and bad hombres Bad Hombres like Pemex.
Now, the best thing to do would be to not reauthorize Ex-Im altogether. But since this won’t happen, how about a few reforms:
- Ex-Im should stop its idiotic competition with other ECAs in higher-income nations (they aren’t needed there and are just bloating the bottom line of large companies).
- Ex-Im shouldn’t subsidize businesses abroad that compete with an American company. Most of those foreign companies, the data show, will do very well without Ex-Im support. Those who don’t shouldn’t be in business or at least shouldn’t be propped up by American taxpayers.
- Place a cap on the size of each deal. For tThe last four years that cap was $10 million. I like that, but even $40 million will be a real improvement over the current $100 million.
- No Ex-Im deal to foreign state-owned enterprises.
- Demand that within 30 days of reauthorization the other ECAs be notified that the U.S. will renegotiate the use of ECA credits down to account for all the progress made in the private sector. The statutory requirement to negotiate a reduction in the reliance on of ECAs globally has been in the bank’s charter for years. But nothing has been done on that front. It is time that changes.
I had a few other suggestions here.
Ryan Young at the Competitive Enterprise Institute also had some good suggestions.
One thing is sure; legislators — even the ones who support Ex-Im — should not reauthorize Ex-Im without serious reforms.