Ordinarily, a question of whether to reauthorize the U.S. Export-Import Bank (Ex-Im) and to increase its loan limit would be about as uncontroversial a proposition as one could find on Capitol Hill. Ex-Im provides an important counterpart to the government-guaranteed loans our international competitors use to encourage their industries’ exports. And it actually makes money for the Treasury.
This year, though, some of my friends among the fiscal conservative and strict constitutionalist communities are urging that the Bank’s authorization be allowed to expire or, at least, that Ex-Im not be allowed to increase the amount of loans it can make with government guarantees. They argue that we should not be extending credit at a time when we are broke, we should not be picking winners and losers, and that these sorts of transactions amount to crony capitalism and favor big businesses.
Despite such concerns, the outcome is not really in doubt. The U.S. Senate will surely vote to reauthorize the Export-Import Bank, as has the House of Representatives, and raise its loan limit from $100 billion to perhaps as much as $140 billion. The reason is clear: The current authorization will expire on May 31st, and the Bank’s existing loan limit will be reached this month. Most Senators and their House counterparts recognize that renewing the Ex-Im’s authority and expanding its lending capacity is crucial to maintaining the industrial base and military readiness, to rebuilding American manufacturing and job growth, to improving our trade balance with other nations – and to reducing the deficit.
But let’s examine the critics’ complaints in turn.
First, the Export-Import Bank is a money-making activity for the U.S. government. According to the U.S. Chamber of Commerce, since 2005, Ex-Im loans, guarantees and insurance programs have returned $3.4 billion over and above its costs and loss reserves, with a default rate of less than 2%. That includes $400 million in 2011 alone. Even if we have to borrow money from the Chinese to make such loans, the net return on investment is positive. That is money that reduces the deficit, not adds to it.
Second, far from picking winners and losers, Ex-Im loan guarantees simply ensure that the United States has a chance to have winners in the international market place. By leveling the playing field with foreign competitors whose governments are only too happy to provide credit – indeed, the Communist Chinese have a facility eleven times the size of the U.S. Export-Import Bank for precisely that purpose – the excellence of our products can be the determinant, not our rivals’ sweetheart financial arrangements.
Third, thanks to an existing congressional mandate to focus Ex-Im’s lending on small businesses, eighty-seven percent of the Bank’s transactions have gone to such enterprises – the ones that have been hit hardest by the credit crunch of the last four years. This fact should allay concerns about “crony capitalism” as the competition for such loans is fierce and merit-based.
Of particular concern to those of us in the national security community, moreover, is the fact that over half of the dollar amount of the Export-Import Bank’s loans support manufacturing. That is of tremendous importance with respect to the foreign sales of big-ticket U.S. items, like commercial aircraft. Such support translates into a cost-effective way to help preserve an aerospace industrial base at a time when it is reeling, and contracting, due to dangerously reduced defense budgets.
Alternatively, if the Ex-Im Bank is not reauthorized with a higher loan level, U.S. manufacturing will soon be damaged by attacks from two sides. For one, in a predatory global market, we would be eliminating a facility that constitutes a vital source of financing for the commercial industrial base for foreign sales. The commercial lending institutions either cannot or will not fill this void.
For another, thanks to the roughly twenty percent cuts in our national security-related spending that the Obama administration has now translated, with congressional acquiescence, into binding statutory direction, we risk devastating – possibly irrecoverably – the manufacturing base of our defense sector.
Matters will be made still worse for the international competitiveness of American corporations as they are now being burdened with the highest corporate tax rate in the world at 39.2%. All of this country's seven major trading partners – Canada, China, Mexico, Japan, the United Kingdom, France and Germany – have lower rates.
Making the case for the U.S. Export-Import Bank does not mean we should be indifferent to the need to improve its oversight. Notably, we should not be providing U.S. taxpayer financing to actual or prospective antagonists like China’s National Nuclear Power Corporation (which, in 1996, received $120 million in low-interest loans to purchase U.S. nuclear power technology). Also, it was not until 2009 that Ex-Im put in place a rule requiring borrowers to certify they have no operations in Iran's energy sector.
Growing exports to friendly nations through loans that are repaid is an eminently sensible public policy, one we should continue through a reauthorized Export-Import Bank with a larger line of credit. At the same time that a redoubled effort is needed to ensure that the Bank’s operations and loans are sound and well-managed, we need to resist the temptation – and Obama administration policy – that seeks to grow exports through encouraging the unlicensed export of militarily relevant (“dual-use”) technologies such as “toxins for vaccine research.” That will be the subject of a forthcoming column.