Late yesterday marked a formal end to the two-year debate on whether the Export-Import Bank (Ex-Im), the U.S. export credit agency, deserves to live to see another day. (It does.) What was once a routine process for Ex-Im reauthorization was held back by congressional charges of corporate welfare by the Tea Party. But while the decision to reauthorize the Bank for another two and a half years is good, the fact that it took so long is not: at this rate negotiations for the next round will have to begin before this legislation is finalized. That is a heavy drain on congressional and Ex-Im Bank resources. One has to ask, is there a way to avoid the same extended debate next time around?
Yes, with a little more clarity on why two-year long ideological attacks on Ex-Im creates uncertainty that hurts U.S. companies and detracts from Ex-Im’s effectiveness. As someone who worked at the Bank for almost three years, I’d like to offer some of that clarity.
Ex-Im operates in a competitive global marketplace where other export credit agencies will be happy to help their companies win the deal. If financing becomes problematic to secure, we risk foreign buyers going elsewhere, especially when it comes to big-ticket items and long-term project finance. Just think: if you were building a multi-billion dollar aluminum smelter would you want to risk the delivery of your power generators and the success of the project? If you were purchasing a new fleet of 18 jumbo aircraft to be delivered over the next three years wouldn’t you pick the manufacturer that comes with secure long-term financing? It’s only natural that a delayed reauthorization, which this time ran eight months beyond the Bank’s expiration date, will cause uncertainty for potential foreign buyers. Why buy U.S. when you don’t even know if your financing source will be around next year?
Ex-Im’s role is not just about leveling the playing field internationally. It’s also about acting as a complement to the financial sector, especially when there are market disruptions. And in this role, certainty is key. If lenders are uncertain about Ex-Im’s future, their willingness to participate in large trade finance deals may come into question, putting those potential U.S. exports in danger. During the 2008 financial crisis Ex-Im found ways to keep lenders in the game, and to keep U.S. companies exporting, by using its unique ability to comfort lenders with “the full faith and credit of the U.S. Government.” For example, Ex-Im provided a $250 million working capital guarantee to Ford that supported thousands of U.S. jobs, and developed a new product designed to support the U.S. supply chain of large U.S. exporters. It’s no coincidence that since the financial crisis hit demand for Ex-Im financing virtually doubled.
Some conservatives claim Ex-Im support for U.S. companies like Ford is “corporate welfare.” They see it as another example of the U.S. Government picking “winners” when the market “deems” they are uncompetitive. True, Ford effectively received financing at the same credit rating as the U.S. Government. But Ex-Im’s support here – a loan guarantee that will be paid back with interest – came at a time when the financial markets were in an unprecedented liquidity crunch, distorting a company’s “competitiveness” in terms of assessing capital. Filling this market gap is a perfect example of what Ex-Im was designed to do. Moreover, with the support other countries give their firms (through subsidies, industrial targeting, exchange rate policies, etc.) it’s pretty hard to distinguish actual competitive advantage anymore. We don’t even know how much it costs to produce something in the U.S. versus a comparable product abroad.
What’s more, with uncertainty over the future comes an internal hesitation to modernize Ex-Im’s core policies, detracting from the Bank’s overall effectiveness. After all, if reauthorization is so timely and energy consuming with current policies as is, could we imagine if there were also substantial changes? That’s probably one major reason why a domestic content policy developed decades ago hasn’t moved with the times to adequately account for intangible services exports like software and other intellectual property. At the end of the day it’s just Ex-Im’s customers that are forced to work around outdated requirements.
And we cannot forget a great benefit of Ex-Im financing on the broader economy – the U.S. jobs supported through Ex-Im’s financing (via loans, guarantees, and insurance). The types of jobs Ex-Im financing supports are mainly the ones our economy doesn’t have enough of – those middle-tier manufacturing and supply-chain jobs that pay well and create real value to the economy. What’s more, recent work by PPI shows that the potential role manufacturing and supply-chain jobs can play in generating sustainable and balanced growth is much larger than we think.
So let’s think twice next time about spending two years debating a two and a half year reauthorization. Instead, why not reauthorize the Bank for five years (like Congress used to), or better yet, for 10 or 15 years. That additional certainty would benefit U.S. competitiveness and U.S. jobs, at no cost to the taxpayer.