U.S. House Congressional Democrats recently brought together a coalition consisting of 26 members to pressure their Republican colleagues to join them in reauthorizing the charter of the Export-Import Bank of the United States. But before Congress hastily moves on their request, it should first investigate exactly how the Bank operates, so we don’t have to pass the bill before finding out what’s in it.
From a distance, the Ex-Im Bank is seemingly harmless. It operates similar to other financial institutions, providing loans and financial packages to entities seeking aid. Where Ex-Im obviates from standard banks is that it is a federal agency backed by American taxpayers. Ex-Im provides the government with a vehicle for intervening into the free market, allowing bureaucrats to effectively hand out subsidies. The impact of these loans is amplified by the fact that they are typically below-market rate with favorable terms. And due to the Bank’s charter, Ex-Im’s financing is only available to foreign companies purchasing goods manufactured in America, and thus, these superior terms cannot be accessed by American employers.
In short, the Ex-Im Bank willingly hands out American money to foreign companies – many of which are state owned – and those resources ultimately gives competitors an edge over U.S.-based companies. Not too long ago, a representative from the Ex-Im Bank declared that it would be sending “unlimited funding” to business projects in Angola. Around the same time, Ex-Im also announced that “it would a strong signal that we are committed to strengthening economic ties with Burma” by offering short- and medium-term financing to local companies. It is difficult to discern exactly how unlimited funding to projects in Angola and sizable loans to companies in Burma are supposed to promote American interests.
If anything, giving loans to companies in these two countries could very well inject money into economies and governments that support questionable practices. According to the State Department, “Angola is a source and destination country for men, women, and children subjected to sex trafficking and forced labor. Angolans are reportedly forced to labor in agriculture, construction, domestic service, and artisanal diamond mines within the country.” On the other hand, Burma has a lengthy history of human rights violations, and was even one of four countries banned from receiving certain forms of U.S. military assistance in 2014. This all begs us to ask the requisite question as to why we should be giving these countries unlimited funding and large loans in the first place.
The inescapable reality of the situation is that Ex-Im’s financing typically do more harm than good. Over the long-term, these loans add up to billions of dollars going to our foreign competitors. No sector of the economy has suffered more than the airline industry, which has lost as many as 7,500 jobs and as much as $684 million according to some estimates. In 2012, the Export-Import Bank approved $11.6 billion of below-market financing to airlines in 21 different countries, meanwhile American carriers are precluded from buying the planes at this same discounted rate. The advantage helps foreign airlines boost their profit margins and makes it more difficult for those in America to compete.
Ex-Im allows the government to selectively pick winners and losers with its financing. But it is not risk free, posing a substantial threat to the American taxpayer who guarantees all of these loans. It is true that Ex-Im Bank is currently in the black, but so were Fannie Mae and Freddie Mac up until they required one of the largest bailouts in American history.
House Democrats would lead you to believe that Ex-Im is instrumental in supporting America jobs and exports. The truth is a select few companies profit immensely from the status quo, starting with Boeing. So much so, the Export-Import Bank is known as “Boeing’s Bank.” In fact, Boeing had revenue north of $80 billion last year and received more than 80 percent of Ex-Im’s total loan guarantee portfolio in 2012.
The Export-Import Bank most recently celebrated its 80th anniversary, which means this federal agency has been distorting free markets, subsidizing Fortune 50 companies and advancing foreign corporations interests for a very long time. It is time to put this cronyism to rest and Congress can start by refusing to reauthorize the Export-Import Bank’s charter.