Gina Rinehart, the richest person in Australia, and her company, Roy Hill, just received preliminary approval for $694 million in financing from the Export-Import Bank of the United States (Ex-Im Bank).
The Ex-Im Bank is a federal lending agency, which focuses on financing and insuring foreign purchases of American goods. In this particular instance, Ex-Im is financing a contract that will allow Roy Hill, an iron ore mining company, to purchase heavy mining equipment from Caterpillar. And while these two parties will certainly find this deal beneficial, a number of American companies will face serious and adverse effects if the transaction is completed.
The Export-Import Bank’s lending practices oftentimes result in foreign companies receiving favorable loan rates that give them a competitive advantage over their American counterparts. In this case, Roy Hill’s primary competitor is Cleveland-based Cliffs Natural Resources Inc. Cliffs is naturally incensed over the fact that Roy Hill, a company already worth billions, will receive a key competitive edge at the hands of its own government.
Crain’s Chicago Business reports that “Cliffs [has] argued that the new mine in Australia would create a glut of iron ore and reduce raw material costs for Asian steelmakers, allowing them to ship low-priced steel to the U.S. and create more harm in lost sales and lower iron ore prices than any benefits for Cat.” According to Cliffs, the deal would displace almost $600 million of U.S. iron ore exports and would lead to a loss of about $1.2 billion in domestic sales.
In the past, Republicans have been very vocal in their opposition to the Ex-Im Bank, accusing it of supporting crony capitalism and arguing that its actions created collateral damage for companies such as Cliffs. And when the Congress recently voted on reauthorizing the Bank’s charter, it received nearly unanimous support from Democrats. However, the tide is beginning to change. This transaction has drawn the ire of Democrats, specifically Sens. Amy Klobuchar (D-Minn.) and Al Franken (D-Minn.), as well as Rep. Rick Nolan (D-Minn.) who have steadfastly expressed their opposition to this deal. Even the unions have come out against this transaction. Plain and simple, this deal provides an advantage to a foreign company over a domestic employer, which will result in lost jobs.
At the present moment, the Roy Hill deal will go to Congress for review and additional comment because it exceeds $100 million. In its review, Congress should publicly oppose the transaction for obvious reasons starting with its negative impact on American workers. Unfortunately, a review is the extent of Congress’ powers, as it merely serves an advisory role in these matters. Ex-Im’s Board will be given the final say and rarely does it ever reverse its stance after preliminary approval.
This is exactly why Congress must now work to eliminate the Bank’s charter altogether when it has the opportunity in 2014. Ex-Im should not have the unilateral authority to intervene into markets and provide loans worth half a billion dollars to American competitors which are guaranteed by the same taxpayers who are losing their jobs as result of it. This government agency is inflicting enormous damage onto American companies and the people they employ.
The time has come for Congress to put an end to a government bureaucracy that has run amok while using the full faith and credit of the American people to the benefit of foreign billionaires and detriment of domestic middle class families. Something has got to give. It’s time for Congress to exhibit good common sense and finally close down the Ex-Im Bank.