The Export-Import Bank was created by executive order during the Roosevelt administration in 1934, later Congress made it an independent agency by 1945. It was designed as a classic New Deal program to finance and insure American exports. As of July 1, 2015, the bank has lapsed – now unable to engage in new business, but still manages its existing loan portfolio.
Until recently, the bank has acted as a financier of last resort when private banks don’t offer loans to industries, frequently in manufacturing. For most of its history, reauthorization of the Ex-Im Bank has been a congressional rubberstamp. For example, Ex-Im Bank financing recently rose dramatically, from $58 billion dollars in 2008 to $114 billion in 2013.
Interestingly, although he supports it now, in 2008 President Obama called the bank “little more than a fund for corporate welfare,” in 2008. Despite serious allegations, President Obama now supports Ex-Im reauthorization.
So does it actually work for American manufacturers or did then-Senator Obama have a point?
The Ex-Im Bank steps in when private banks can’t or won’t help foreign companies buy U.S. goods with loan guarantees, loans and insurance. The bank not only operates in manufacturing, but aerospace and energy industries as well. The bank backstops about 2 percent of all U.S. exports, supporting 164,000 jobs in 2014. Additionally, EX-IM does turn a profit. The default rate of the Ex-Im Bank is very low, less than 1 percent since its inception.
So why or why not reauthorize? There are two main arguments.
One argument is that if the U.S. doesn’t support exporting manufacturers, other nations will still support theirs. According to the National Association of Manufacturers, more than 60 foreign export credit agencies compete with the Ex-Im Bank. In the aerospace business, it’s a given that major buys are supported by some form of government subsidized financing. The decision between Airbus and Boeing often comes down to financing, rather than product performance.
Others argue who the Ex-Im Bank helps: A George Mason university study revealed that 30 percent of the banks transactions benefitted a single company: Boeing – even though 90 percent of the firms aided were smaller businesses. Some critics argue that backing giant firms like Boeing, who are presumably capable of arranging financing for their customers.
If you’re a Tea Party conservative or a free enterprise purist, it’s a dilemma. The Export-Import Bank is an effective way to boost U.S. exports, especially for big ticket products like aircraft. It’s also a form of corporate socialism, redistributing taxpayer wealth to the business sector. You do have to wonder… if it works so well, why doesn’t the banking sector keep it going on principle? I don’t like the notion of governments financing exports, but if everyone else is doing it, taking the moral high ground would result in serious job losses in some high profile manufacturing segments.
I predict reauthorization will happen… Tea Party Republicans will just have to hold their noses. Let us know your thoughts in the comments below.