Tags
Adam Smith, conservatives, Exim, Export-Import Bank, exports, financing, manufacturing, Mitch McConnell, subsidies, Ted Cruz, The Race to the Bottom, Trade
The fight in Washington over resurrecting the Export-Import Bank has gotten so heated that it’s responsible for Texas Republican Senator (and presidential candidate) Ted Cruz calling his Kentucky colleague (and Senate leader) Mitch McConnell a liar, and has the nation’s major business groups lobbying furiously for reauthorization. For the life of me, I still can’t figure out what the big deal is.
In principle, I like the idea of the Bank – which has been forced to suspend most of its operations since its authorizing legislation ran out on June 30. It helps promote U.S. overseas sales by providing low-cost, taxpayer-backed financing for American businesses that want to do business with foreign customers that are sort of risky. The financing needed to clinch sales to these customers – in effect, a subsidy – enables the exporters to compete effectively with foreign rivals that receive similarly “attractive financing” from their governments.
It’s hardly free markets – but America faces a world of trade competitors that aggressively intervene to support their own firms and workers all the time. Matching this particular form of subsidy is simply a variation on Adam Smith’s maxim that an appropriate way to fight foreign trade barriers is to create bargaining chips by erecting your own.
At the same time, as I originally pointed out in my book The Race to the Bottom, by fostering trade with partners that aren’t terribly creditworthy, the Bank’s operations have reinforced the illusory claim that the supposedly “emerging markets” of the third world have become keys to future U.S. prosperity, and that reaching and cultivating these markets should trump other possible trade policy goals (like, say, recapturing the import-controlled portions of America’s home market). After all, if exports to a certain country need to be subsidized, that market probably isn’t very sustainable, and businesses should be wary of relying on them.
In addition, the share of U.S. exports aided by the Bank is miniscule. During fiscal year 2014, Exim says it supported $27.4 billion worth of these transactions. That works out to 1.68 percent of total goods exports. It’s true that, just as not all goods and services produced necessarily have the same long-term value to a national economy, not all exports are created equal. As I’ve repeatedly written, manufacturing plays a special role due to its heavy reliance on research and development, the high wages it pays, and its economy-leading productivity growth. Exim overwhelmingly works with manufacturers, but those $27.4 billion worth of 2014 fiscal year Bank-aided manufactures exports come to only 2.30 percent of the U.S. total that calendar year.
I’m kind of sympathetic to the argument that cutting smallish programs can create outsized political benefits by demonstrating will. In other words, how can politicians who can’t even agree on eliminating trifles ever hope to agree on meaningful spending reductions? In addition, the Bank has had a not-trivial scandal problem in recent years, reinforcing conservative charges that it embodies “crony capitalism.”
Yet the Bank has experienced only very low default rates on its loans, and largely as a result, it’s actually a net contributor to the U.S. Treasury. Its minor role makes clear that the Bank is anything but a game-changer – as its sometimes fevered corporate supporters often imply. (In fact, if they were really concerned about leveling the global playing field for domestic producers, they’d drop their opposition to unilateral U.S. sanctions on currency manipulation and other predatory foreign trade practices.) But Exim’s record adds force to supporters’ arguments that the nation’s economy is better off with its activities than without them.
By the same token, however, although conservatives are right to worry about official overreach and its dangers, Exim is anything but a poster child for government corruption or inefficiency. If their leaner government campaign is serious, Congressional Republican hardliners will target much more appropriate targets than the Export-Import Bank.
