The Export-Import Bank and Its Victims: Which Industries and States Bear the Brunt?

by Daniel J. Ikenson,

The charter of the Export-Import Bank of the United States is set to expire on September 30. Proponents of reauthorization claim that by increasing exports and jobs, Ex-Im benefits the U.S. economy. But in that advocacy, the benefits are exaggerated and the costs totally ignored.

The Bank’s skeptics speak of the opportunity costs that arise when government attempts to allocate resources according to nonmarket criteria. They also note that subsidies provided for the benefit of one exporter put competing firms at an artificial disadvantage. In addition to these opportunity and intra-industry costs, there is a third set of significant costs that are too often forgotten: the downstream industry cost.

In their efforts to win reauthorization from Congress, supporters of the Export-Import Bank rely on exaggerated claims about the Bank’s benefits, while ignoring its costs. Ex-Im policies reward some companies (in the short run) and penalize many others in the process. These kinds of data are often obscured or ignored, but they are essential to any informed judgments about the propriety and efficacy of the Export-Import Bank.

The Export-Import Bank of the United States is a government-run export credit agency, which provides special financing arrangements to facilitate sales between certain U.S. companies and foreign customers. For several months, Washington has been embroiled in adebate over whether to reauthorize the Bank’s charter, which will otherwise expire on September 30

First, by dismissing the risk assessments of private-sector, profit-maximizing financial firms and making lending decisions based on nonmarket criteria to pursue often opaque, political objectives, Ex-Im misallocates resources and puts taxpayer dollars at risk.

Second, even if taxpayers had tolerance for such risk taking, the claim that Ex-Im exists to help small businesses is belied by the fact that most of Ex-Im’s loan portfolio value is concentrated among a handful of large U.S. companies.

Third, the notion that because Beijing, Brasilia, and Brussels subsidize their exporters Washington must, too, is a rationalization that sweeps under the rug the fact that there are dozens of criteria that feed into the ultimate purchasing decision, including product quality, price, producer’s reputation, local investment and employment opportunities created by the sale, warranties, after-market servicing, and the extent to which the transaction contributes toward building a long-term relationship between buyer and seller.

Fourth, by trying to “level the playing field” with foreign companies backed by their own governments, Ex-Im “unlevels” the playing field for many more U.S. companies competing at home and abroad.

While Ex-Im financing reduces the cost of doing
business for the lucky U.S. exporter and reduces the cost of capital for his foreign customer, it hurts U.S. competitors of the U.S. exporter, as well as U.S. competitors of his foreign customer by putting them at relative cost disadvantages.

Supporters tend only to speak of the benefits of Ex-Im activities, as if there were no opportunity costs, intra-industry costs, or down stream industry costs. But those costs exist and they need to be taken into consideration as part of a net benefit analysis.

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