– January 26, 2020

This week, I was invited to testify before the Board of Advisors of The United States Export-Import Bank (EXIM). Whatever their reasons, I commend them for having me for a stimulating conversation. 

As many of you know, I have been and remain an advocate for the agency’s termination. I have written extensively on why termination is the best policy.  The gist of the argument is this: Export subsidies are a net negative on the economy and EXIM is a quintessential example of corporate welfare since it is mostly in the service of large foreign and domestic companies and at the expense of the American economy as a whole.

That said, after four years of laying semi-dormant due to its inability to make deals above $10 million, EXIM got revived and last December it got reauthorized for 7 years without any fundamental reforms. 

The question I have faced since is ‘What should I do?’ Should I move on? Or should I keep fighting to help people understand what is wrong with export subsidies? And if I fight, what does it look like? I decided not to give up. There are three things I think those of us who care about crony capitalism and bad economic policies can do on this front.

The first one is to continue explaining what’s wrong with the assumptions that fuel support for export subsidies. This is important because EXIM isn’t the only agency charged with promoting exports. The belief that exports are worth subsidizing and protecting is also at the core of much of the current wave of protectionism.

Second, since EXIM is alive and will be so for the next 7 years, there are some worthy reforms I would like to see implemented. Part of the idea there—which goes against my instincts since I would rather fight for the first-best solution than the 10th or 12th best ones—is that there are ways to make the agency less damaging to the economy, and ways to neutralize the biggest cronies. I am not holding my breath but it is worth trying.

Third, there is some value in pointing out the internal inconsistencies that exist within EXIM, such as the gap between what the agency says it wants to do and what it actually does. This is not unique to EXIM. This is, I confess, particularly challenging for me as most of the goals pursued by the agency – i.e. supporting exports through government-backed financing or using EXIM as a tool to compete with China- are goals that I disagree with. But I hope that by continuing to debate these ideas, somewhere along the way, some of them will stick, if not on EXIM, at least on the way people think about issues related to trade and to export subsidies in particular. 

I may be mistaken and this could be a waste of time. For instance, assuming that there is truly a desire to implement some reforms at EXIM, some of the mandates imposed by Congress make these reforms impossible (i.e. demanding that EXIM be both competitive with other Export Credit Agencies (ECAs) mostly in rich countries and become a tool to compete with China). Another limitation is the career staff. The proportion of people open to reforms vs people who want to keep the place as is (i.e., most career staff) is minuscule. As if that wasn’t hard enough, realistically, all the career people have to do for nothing to change is drag their feet and slow the process until the political appointees leave. They have time on their side – that is, unless people can be fired and replaced by new people.

I want to believe that at a minimum, in publishing these remarks here, I am contributing to a battle of ideas that started long before me, and I am afraid will have to continue long after me, about the counterproductive and often crony nature of these export subsidies, and EXIM in particular. I stand on the shoulders of giants. And I thank those who have come before me and fought this fight brilliantly before, like David Stockman, Sallie James, Tim Carney, Diane Katz, Don Boudreaux, and Tad DeHaven. But there are many more out there who have done and still do great work on this issue. I thank you all for your continuous engagement on this topic.

What you will find below are the remarks I would have delivered had I had 30 minutes. I only had 5 so I had to cut them down significantly. They are far from exhaustive on the issue of EXIM, and only the continuation of a conversation I started with the Board of EXIM back in October. For more on both go here


Last October, I laid out a detailed list of written recommendations on how EXIM can improve procedures both on Economic Impact and on Additionality [note to readers (NR): additionality is the term used to describe the value added by a government program as compared to a situation where such program doesn’t exist]. 

What I would like to do today is to provide some additional comments in light of events since I submitted my recommendations, most notably EXIM’s reauthorization in December but also EXIM’s revised Strategic Plan, as well as some extremely troubling news regarding EXIM’s most favored exporter.

But before I do, I would like to begin with some foundational economics.

EXIM’s primary reason for being is to increase exports as if more exports themselves represent more economic growth. A recent example of this belief can be found all over an otherwise good book by Fred Hochberg, the former president of EXIM. He writes, “We know that trade, and exports in particular, can have a big impact on jobs.” No, actually we do not know that. One misunderstood truth about exports is that they are a means of acquiring imports. If we could acquire imports without exporting anything, that would be the best of all worlds for us. Unfortunately, foreigners won’t work for us for free. They want things in return for what they produce for us, and so we must export.

Unfortunately, this misunderstanding and the constant glamorization of exports and its impact on jobs is used as a justification to support exports. But exports promote U.S. economic growth only if the value of the resources used to produce exports is less than the value of what we receive as imports in exchange for those exports. But by subsidizing American exports, EXIM causes too many resources to be devoted to producing exports. The result is that the total value of our exports is made larger than the value of our imports. EXIM compels American taxpayers to subsidize foreigners’ standard of living. How does this outcome enrich us? It doesn’t.

Nor does subsidizing exports increase the total number of jobs. Sure, more jobs are created in industries that export. But these subsidies don’t fall from the sky. They’re diverted away from other American industries. These other industries thus produce less and, hence, employ fewer workers. The trouble is that these other industries are many and scattered. The negative effects on them are difficult to see, in contrast to the ease of seeing the jobs created in the relatively fewer industries that export. But just because the loss of jobs elsewhere is difficult to see doesn’t make those losses less real.

With that out of the way, I would like to move to some reasons I have to worry about the lack of change at EXIM.

EXIM’s Revised Strategic Plan – released just last month – suggests that EXIM’s new strategy is no different from its old strategy

First, as we can see in the Strategic Plan, the agency continues to emphasize “global ECA competition” and the need to level the playing field for exporters’ competition against subsidized foreign companies.

While EXIM and members of Congress have tried to cast EXIM reauthorization as a tool to fight China, the agency’s “Targeted Outcomes” suggest it will pursue the same, tired policy that it has pursued for decades – namely to compete with Western ECAs in markets that are well-served by completely private sources of financing. That will do little to reform EXIM into a “tool to fight China.” [NR: I present data to show that this is in fact the case that most of the money goes to large well-connected companies in higher income countries and explain why it is wrong with this approach in details, here and here].

For instance, the “Targeted Outcomes” of “Increase amount of EXIM MLT financing relative to foreign ECAs,” and “Increase amount of EXIM MLT financing in particular industries that have historically sought EXIM support, but where EXIM has fallen behind in terms of ECA activity relative to the significant market presence of U.S. companies in such industries.”

It pains me because EXIM’s continued obsession with what other ECAs are doing signals that it believes that economic growth and jobs result from victory in hand-to-hand combat between government banks. I have said it before but it bears repeating: this notion is ludicrous.

As I have explained in detail during my last testimony, the EXIM’s Competitiveness Report highlights levels of ECA-backed exports but lacks the essential perspective as to what these numbers mean. Take the case of Italy, which EXIM seems to believe is an example to follow as a hyperactive ECA. The Italian ECA’s hyperactivity appears to have had little impact on the country’s economic growth or employment. Last time I checked, Italy was no economic superpower.

Even in countries touted as top backers of exports, which includes China, the share of the exports backed by ECA financing is never ever larger than 4.7 percent and 23 out of the 28 countries on this list have a share of exports backed by ECA financing lower than 2 percent. That includes China. This means that even in most of these countries, over 98 percent of exporting occurs without government backing. So basically, ECA financing doesn’t improve the overall health of the export market, or move the needle forward on growth or jobs.

I know this reality is painful for an agency dedicated to the belief that export subsidies create economic growth and jobs. In reality, what this agency does is to shift capital toward favored export companies, which sometimes does add more jobs at these firms. However, as I mentioned earlier, this capital is diverted away from other American industries, many of them also exporters.

In addition, EXIM’s strategy suggests that it wants to step back into sectors such as aircraft finance, which were well served by completely private sources of financing while EXIM support was not available over the last four years [NR: Here is a study on what happened when EXIM wasn’t functioning fully].  How does it serve U.S. exporters – or taxpayers more broadly – for EXIM to go back to what it was doing when the record shows that EXIM’s absence from such sectors had no negative impact? And by the way, if the capital is available, as we have seen it was for most of EXIM’s portfolio, there is no additionality.

Second, another one of EXIM’s strategies in its new Strategic Plan is to “Increase partnerships with the private financial services sector.”

If this means continuing relationships like EXIM has with the Private Export Funding Corporation (PEFCO), in which EXIM has created an entity owned by large banks and its largest borrowers profit from trading in fully backed U.S. taxpayer-backed guarantees, then EXIM really does not have a credible road map to achieving Additionality. [NR: I have written about PEFCO and why it should be abolished here. I also hope that more people will write about this entity. I may even be more problematic that EXIM itself.]

As I noted previously, with PEFCO set to expire at the end of this year, EXIM can show that it is serious about additionality and reform more generally by having PEFCO sunset.  However, as EXIM threw a $2 billion lifeline to PEFCO last October, it seems that EXIM is going to need a strong push to pull the plug on PEFCO.

Now, I would like to focus on China in EXIM’s reauthorization

China appears all over EXIM’s revised Strategic Plan, just as it was a key topic in EXIM’s last Competitiveness Report (and I easily predict will be the focus of the next report).

Given the focus on China in EXIM’s reauthorization, it’s not crazy to assume that EXIM is expected to change its model to address this issue. While old clients may be celebrating their successful lobbying to get EXIM a new 7-year lease on life, I would like to hear from EXIM’s leadership on how, in light of Congress’ mandate to continue to make competing with other ECAs a priority, they intend to meet Congressional direction for EXIM to:

·         Establish a Program on China and Transformational Exports to focus on exports in sectors including “quantum computing” and “emerging financial technologies,” and reach the goal set in legislation to allocate 20% of its exposure to transactions that target Chinese competition.

·         Report on financing offered to the Chinese government or to entities effectively controlled by the Chinese government.

Unfortunately, I predict that you will have a hard time achieving this goal if you continue, like your strategy document reveals, looking in the past, and the bulk of what EXIM continues to be at the service of large companies operating in higher-income nations with plenty of access to capital.

Finally, I would like to turn to the Boeing revelations as it relates to EXIM

Last time I was before you, I may have come off as rough on Boeing. (NR: Boeing has traditionally been the number 1 beneficiary of EXIM so much so that we all call the agency The Bank of Boeing. Boeing also doesn’t need EXIM to sell its planes, first and foremost because until now it had made excellent planes and a vast majority of its clients have plenty of access to capital to buy these planes—as was confirmed during the last four years when EXIM was out of the aircraft business). 

Based on recent revelations I think that I actually went too easy on them.

Boeing’s internal text messages and documents express a lack of concern about safety and contempt for regulators and slippage in the company’s seriousness about safety issues. Here we have a real-life example – with data and text messages to back it up – of the unhealthy behavior we get because of corporate welfare. In this case, we have a company, Boeing, focusing a big chunk of its resources on lobbying the government to avoid the need to meet minimum safety standards and securing EXIM reauthorization, while it may have failed to take the proper steps to making sure its planes were safer.

Boeing’s well-documented cozy relationship with government has been made possible by spreading economic fallacies. One of the biggest ones of course, visible through the pages of every EXIM report, is the claim that EXIM’s support for large firms with easy access to private capital is allegedly justified by these firms’ use of small manufacturers in extensive supply chains.

Facts and data debunk this myth. During EXIM’s lapse for instance, there is no evidence that Boeing’s lack of access to EXIM financing had any negative impact on the company or its extensive supply chains.

What we must recognize, however, is that Boeing’s recent, self-wrought failures have had an impact on its supply chains. In the last few weeks, Spirit AeroSystems, one of Boeing’s largest suppliers for the 737 Max, sent pink slips to roughly 2,800 employees at its Wichita plant, citing “ongoing uncertainty” involving Boeing’s jet.

Companies like Spirit AeroSystems – which suffered no impact from EXIM’s 4-year lapse – are being done in by corporate lobby practices that divert resources into garnering political influence and away from building a safer plane.

Furthermore, there is a lesson in the Boeing experience for EXIM specifically.  Boeing not only hurt its own reputation.  It not only hurt the companies in its supply chain in a way that EXIM’s absence from the market did not do.  Boeing’s actions severely – and perhaps irreparably – undermined the reputation and credibility of its regulator, the Federal Aviation Administration.

It’s noteworthy, by the way, that China broke with traditional air-safety practice by grounding the 737 MAX before the FAA did so. Think of the implications for a minute.

Just as Boeing’s excessive political influence has hobbled its own regulator, EXIM won’t look very serious if it goes back to being the Bank of Boeing, the Bank of GE, the Bank of every other conglomerate that competes through political capture instead of through market-tested innovation.

EXIM cannot look forward to new challenges so long as it remains trapped by the past.


EXIM has claimed a reformist mantle, and Congress has charged EXIM with a challenging (read sometimes contradictory) mandate. The revised Strategic Plan and initial drafts of procedures on additionality that EXIM has put forward do not augur well for a “new” or “reformed” EXIM that is looking ahead to the future’s challenges. Instead, it remains mired in the past, in part dragged down by Congress’s misunderstanding of the issue and conflicting mandates.

Veronique de Rugy

Veronique de Rugy

AIER Senior Fellow Veronique de Rugy is also a Senior Research Fellow at the Mercatus Center at George Mason University and a nationally syndicated columnist. Her primary research interests include the US economy, the federal budget, homeland security, taxation, tax competition, and financial privacy. She received her MA in economics from the Paris Dauphine University and her PhD in economics from the Pantheon-Sorbonne University.

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