WASHINGTON — The Export-Import Bank’s armor of daring, though the thickness of rhino skin, won’t protect it from Pennsylvania Sen. Patrick J. Toomey, a Republican-ranked Banking Committee. He knows that what the bank’s board will consider on April 14 is not mission drift, but mission gallop.
The Ex-Im Bank was established in 1934 in the New Deal attempt to banish the Depression by expanding government allocation of the nation’s resources by providing guaranteed loans to exporters. The Depression ended 83 years ago, not because of New Deal turmoil, which almost certainly prolonged it, but because preparations for war did what the New Deal did not: put back Americans at work. (The 1939 unemployment rate of 17.2% was higher than the 1931 rate of 15.9%.)
Ex-Im has been reauthorized 17 times, despite evidence that it is not necessary: between 2015 and 2019, when its board was three members away from a quorum, it was unable to approve loan guarantees greater than $10 million. From 2014 to 2018, the share of US exports subsidized by the bank rose from little (less than 2%) to miniscule (0.3%) – yet US exports grew.
Ex-Im is known as “Bank of Boeing.” From 2007 to 2017, Boeing received 34% of the bank’s aid. In those 10 years, all small business loan guarantees accounted for 22% of the bank’s assistance.
For many years the world has been flooded with savings, and therefore cheap loans. Historically low interest rates make Ex-Im even less necessary than it once was – even though it was never a necessity. This could explain the national financing initiative proposed by the bank.
This would support “establishment and/or expansion” manufacturing and infrastructure projects in the United States that “support and facilitate” export while “reenactment” the manufacturing sector. Ex-Im would subsidize, with below-market-cost loans, any U.S. business that has a “export link”. A link can be direct (for example, a borrower exports 25% of its production or uses 25% of its capacity to export) or indirect (for example, the borrower sells 50% of its production to a company that exports 50% of its output).
These percentages could and probably will be lowered to attract more companies to qualify for Ex-Im guarantees. Seeking to expand its reach, Ex-Im might decide that 25% is better than 50%. Any small firm would then be eligible if it sold a quarter of its small output to a large firm for which the small firm’s output is only a tiny fraction of the value of the large firm’s exports.
So, first the Ex-Im fabricates a broad mandate to improvise industrial policy – “reenactment” manufacturing accounts for 11.4% of the economy. (Presumably, Ex-Im will rely on its foresight regarding future markets for future goods and services.) Then the bank interprets its mandate to “facilitate” exports to include financing the needs of “suppliers to exporters”. But, says Ex-Im, don’t worry about overreach: Ex-Im funding must have a “reasoned and articulated” link to exports, as determined by: itself.
When the government uses opaque terminology, it rarely seeks clarity. Consider “additionality” what Ex-Im says “refers to the existence of one or more reasons why a transaction would likely not occur without EXIM’s support.” The bank decides that there is “gaps” between the financing that the private sector is willing or able to provide for a project and what the project requires. Or what the private borrower prefers to get from Ex-Im. The bank says its “gap analysis” understand “Anecdotal and aggregated information straight from multiple high-profile one-on-one interviews with senior market players.” That is, potential recipients of Ex-Im benefits.
The supposed “gaps” should generally fall between the rates that private sector borrowers are willing to pay and the rates that private sector lenders are willing to offer. Both parties know that Ex-Im exists to provide loans at below market rates; they know that there is usually a rate at which private lenders lend for a particular project. And private borrowers will surely often prefer Ex-Im rates, even if the bank insists that it exists for “complement and encourage and not compete with private capital.”
Toomey wonders: Why, exactly, do private lenders need supplementing? Why should the government encourage private lenders to do something that, in the absence of such encouragement, prudence tells them not to do? In opposing the expansion of Ex-Im, Toomey is doing what James Madison directed: “It will not be denied that power is of an invasive nature and that it must indeed be prevented from exceeding the limits assigned to it.”
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