Another Perspective

The Case for Ex-Im Bank

Why pick on a genuine success story?

By 7.14.14

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The Export-Import Bank of the United States, more commonly known as Ex-Im Bank, is fighting for its life, now that its eighty-year-old charter is up for renewal by Congress. The new leadership and conservative wing in the House of Representatives view Ex-Im Bank as an entitlement for private enterprise, an example of corporate welfare and so-called crony capitalism. But before overreacting, Congress should consider the facts about Ex-Im Bank’s mission to support American jobs, its performance, and the possible consequences of its demise.

In view of systemic bad credit practices, the economic meltdown, and the destruction of part of Wall Street in 2008, there is no shortage of sniping at anything with “bank” in its name, or for that matter, anything resembling a harbor for the one percent. When he was a presidential candidate, Barack Obama himself called Ex-Im Bank an example of corporate welfare, although in 2012 when he extended its existence for two years, he emphasized the need for American export competitiveness.

Ex-Im Bank typically provides direct loans at low rates of interest to foreign buyers of American exports and also guarantees promissory notes of foreign buyers that are given to American exporters, which can then sell those notes to their banks to obtain cash.

There are arguments used to question the existence of Ex-Im Bank. It essentially interferes with free markets by subsidizing interest rates. It also assumes risks that the private sector will not take — such as non-payment, war and domestic unrest, and certain arbitrary and capricious actions by foreign governments, particularly repudiation of debt. And often, purchasing decisions are based mainly on quality, price, and after sales service.

Although Ex-Im Bank has supported the exports of thousands of U.S. companies, until very recently it has not made much noticeable effort to sell itself to Congress and the American people. Of late, Ex-Im Bank expects to give each member of Congress the names of companies it has helped in their districts.

In aggregate terms, Ex-Im Bank is a minor player in the export trade. As recently reported in the Wall Street Journal, for fiscal 2013, it approved commitments of $27 billion for a country that exported an estimated $1.6 trillion in 2013. During that year, Ex-Im Bank earned over $1.0 billion in interest and fee income, which benefitted the U.S. Treasury. Remarkably, Ex-Im Bank recently reported to Congress a default rate of about 0.2 percent.

It is well-known that Ex-Im Bank has concentrations of business involving major companies such as Caterpillar, Boeing, and GE. What is not so well-known is that Ex-Im Bank has gone far beyond the Fortune 500 leaders to assist over 7,000 exporters in the past seven years, as disclosed on its website. In Illinois, Ex-Im Bank has helped just over 300 companies with $6 billion in commitments. Two thirds of those companies are defined as small businesses, meaning sales under $21.5 million or 500 to 1,500 employees in some sectors. Sixteen percent of such Illinois firms are reported to be minority and women-owned. Ex-Im Bank further affirms that in the past five years, it has supported 1.2 million U.S. jobs and that in 2013, almost 90 percent of its transactions were to help small businesses.

Ex-Im Bank is hardly the only government agency that assists the private sector with international business. For decades, the Overseas Private Investment Corporation, known as OPIC, has focused not on exports but on direct investment by U.S. companies in high risk countries, where it offers financing, guarantees, and insurance of political risk.

In considering renewal of Ex-Im Bank’s charter, Congress should remember the long list of industrial and industrializing countries have similar institutions. Canada, Great Britain, France, Germany, Italy, Spain, Sweden, Turkey, Japan, China, India, Brazil, Russia, Mexico and South Korea have official agencies with the mission to support exports. (OECD sources report over thirty.) That Ex-Im Bank interferes in free markets is a ridiculously purist thought, since it is the business of the Federal Reserve System to do the same to maintain price stability, encourage employment, and maintain the value of the dollar.

Without renewal of Ex-Im Bank’s charter, there will be two negative signals to the world. First, the U.S. will not be as competitive as many G7 and OECD countries which offer subsidized financing and guarantees to support their exports. Second, and rightly or wrongly, the U.S. will be seen as withdrawing from world trade, and our competitors and adversaries will be only too happy to hype that impression.

With an incoherent and supine strategy in the Middle East, a reset with Russia that failed, diluted support for Israel — and a pivot to Asia that seems to miss the point of an emboldened Russia — the demise of Ex-Im Bank could be perceived as yet another American abdication by the Obama Administration, already known for its withdrawal and aloofness.

In view of the need for fiscal austerity on many fronts, it’s good that Ex-Im Bank must intensify efforts to justify itself to Congress and more broadly to the American people. But let us hope that these efforts are not too little and too late.

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About the Author
Frank Schell is a business consultant and former international banking executive. He serves on the Dean’s International Council of the Harris School of Public Policy Studies, University of Chicago where he is a lecturer.