You’d be forgiven if you’ve never come across news of the U.S. Export-Import (Ex-Im) Bank. There are, after all, much sexier stories making the rounds and far more visible agencies of the federal government that have engendered discontent in recent years. Given the politically weaponized nature of the most powerful revenue service in the world as they’ve targeted right-leaning action groups for increased scrutiny, it’s no surprise the IRS has further ensconcing themselves as one of the most hated federal agencies in the country.
But given that the Ex-Im Bank faces reauthorization on September 30, focus in Washington has turned to the federal credit agency, a Depression-era entity created–via executive order–to generate U.S. exports to foreign companies by providing lines of credit at subsidized rates. The effect is ostensibly “win-win”: foreign firms enjoy lower costs of borrowing, and American companies increase their export business.
That’s the talking point for public consumption, at least. But there’s a term that tends to attach itself to the hip of any government-funded venture that attempts to weed its way into the market with the intent of influencing it: cronyism, and the Ex-Im Bank wears that particular descriptor like a favorite pair of Levi’s jeans. An 80 year old pair of jeans that’s tempting to hang on to a while longer, but one needing to be scrapped. It’s time for Ex-Im Bank’s swan song.
We are–or least ways, ought to be–quite wary of crony capitalism wherever it rears its meddling head. Unless our collective memories have grown dim, it was precisely the failed attempt of the Obama Administration to pick “winners and losers” in the energy market that lead Solyndra to a fiery death in 2011. While Solyndra was helping itself to $535 million worth of taxpayer-backed loan guarantees, it was also facing significant financial difficulties that threatened long-term solvency. When it finally did fail, taxpayers were left with a half-billion hole in their wallets. Oops.
Such is the ever-present risk of allowing federal agencies to play third wheel in an otherwise free market. Ex-Im is no different. Except in this instance, it’s not just taxpayers being borne with the risks and consequences of government intervention. Then-Senator Obama may have believed that when you spread the wealth around, it’s “good for everybody”, but in the case of Ex-Im, all that’s spread is a stratum of risk on American jobs and businesses alike.
To begin, anytime a federal entity such as Ex-Im provides a loan guarantee or line of credit at a subsidized rate to a foreign company, it necessarily creates a position whereby American businesses are at an inherent disadvantage as they seek to compete, since American companies must pay full price on a similar loan. Such was the case of Air India, who with $3.4 billion in Ex-Im financing was able to secure the purchase of 27 Boeing aircraft at rates that no American carrier was privy to. As a result, Air India will realize a cost advantage of approximately $2 million per aircraft.
U.S. corporate tax rates already present American businesses with significant impediments compared to those found worldwide; rates Washington seems particularly nonplussed about. One cannot be “pro-American” enterprise yet allow it to be shackled by the duel chains of overtaxation and corporate bias.
Ex-Im is also complicit in threatening our labor market, one that’s already been shifting abroad as overhead costs and burdensome regulation makes maintaining a job here less attractive. Recently, Democrat Senators Carl Levin and Debbie Stabenow, both from Michigan, penned a letter to the president of Ex-Im Bank expressing concern over the agency’s $694 million loan approval to a company seeking to produce an open-air iron ore mine in Australia. One owned by the country’s richest woman. Go figure.
The approval came despite warnings that the loan would contribute to an increase in foreign production on top of an already existing global overcapacity of iron ore, and in turn, the senators argued, “substantially injure American iron ore and steel producers and their employees that are competing in the same global marketplace.” Pushback against Ex-Im has generally come from the right, but a threat to jobs at home from foreign competitors is yet one of the few truly bi-partisan issues left.
As Solyndra illustrated, cronyism runs the risk of failure, and in the case of a loan guarantee: default. For a private lender, the hit is borne by few. When the Ex-Im Bank takes a hit, we all lose.
Which is so nice. So not only is the public, by virtue of its government’s actions, complicit in creating an inequality for homegrown companies, but should the loan fail, we get screwed again. If federal government has deftly demonstrated anything, it is it’s ability to punish the people as completely as possible.
Proponents of the bank–such as U.S. Chamber of Commerce–will rationalize its continued existence by extolling the aid small business receives through its operation. The Chamber has long since forfeited any semblance of loyalty to the virtue of free enterprise it claims to champion, instead choosing to ingrain further union between Big Business and government, but they betray the extent to which Ex-Im Bank actually plays in total U.S. export business every year.
Ninety-eight percent of the $2.2 trillion in U.S. exports made annually isn’t financed through the Ex-Im Bank, and among that remaining 2% are vast, multinational corporations like Ford Motor Company (market value of $66 billion), and John Deere, with a 2013 net income estimated at $3.3 billion. Companies like these hardly need public assistance. While surely there are smaller businesses receiving subsidy, does their vanishing share of the total export pie every year justify a federal agency using taxpayer funding to prop up foreign firms to the detriment of American enterprise? In a venture that the CBO states is costing money, as well?
Flatly, no. It does not. As I’ve stated before, a free marketplace devoid of government intrusion is a hallmark of self-governing societies. Such markets are undercut by federal attempts to stimulate trade, which in reality, merely shift competitive advantages overseas while exposing citizens at home to entrepreneurial inequalities and financial risks we shouldn’t have to bear.
Ex-Im has become an unwelcome loiterer. 98% of U.S. export business isn’t supported by it, and it’s high time the other 2% sink or swim. Such is a free market. It’s time to let Ex-Im Bank die. We’re a little freer without it.