Ex-Im: Mend It, Don't End It
In an ideal global marketplace, the U.S. Export-Import Bank would not exist. In the current global marketplace, however, its continuation is justified. Congress should reform Ex-Im, not eliminate it.
U.S.-based companies face a competitive barrier from foreign export credit agencies (ECAs), which help to finance exports from companies in their respective countries. The barrier is real, and large. In 2012, OECD member nations (excluding the U.S.) and the "BRIC" nations (Brazil, Russia, India, and China) provided $154.2 billion in export financing to their companies. Chinese ECAs alone provided $45 billion in financing to Chinese exporters in 2012, and that's a conservative estimate; the number could be as high as $70 billion when export-related financing from the Chinese Development Bank is included. Without Ex-Im as a last resort when commercial financing is unavailable, U.S.-based companies would find it harder to compete and win in the global marketplace.
While government officials negotiate for the end of state-supported export finance with international players, the continued operation of our own ECA remains a pragmatic way of supporting our businesses in a distorted market. Supporting and encouraging U.S. trade is vital to future economic growth. The reality is that more than 95 percent of potential customers for American-made products live outside of our country.
To help American products reach foreign markets, the Export-Import Bank offers loans, loan guarantees, and export credit insurance. Demand for those products increased following the financial crisis, pushing Ex-Im authorizations to a peak of $35.8 billion in FY2012. But authorizations fell 24 percent in FY2013 and should continue to fall as private capital is better able to meet demand for export financing. While direct loans to foreign buyers are one product offered, Ex-Im financing also guarantees U.S. companies payment when they ship products overseas, guarantees private banks repayment for loans supporting exports, and extends credit to U.S. companies needing additional capital to expand beyond local production and reach new markets abroad. 89 percent of that financing in FY2013 was for small businesses.
That's not to say Ex-Im is running perfectly, however. Congress must reauthorize the bank before September 30, and this is an opportunity for reforms that would better protect taxpayers, increase transparency, and streamline the bank's mission.
At its core, the bank exists to increase exports and jobs through financing that supplements but does not impede private capital. Yet Ex-Im has been inundated with a host of other criteria and guidelines to consider, many of them politically motivated. These quotas and broad directives, from the 10 percent renewable-energy quota to a directive encouraging financing for Sub-Saharan Africa, limit the bank's ability to carry out its foremost function and compete with foreign ECAs, which often operate under broader national-interest mandates. (Not to mention that Ex-Im rarely meets those mandated goals.) Limiting quotas and other restrictions on the allocation of credit across geographic regions, industries, and firm sizes would not only enhance the bank's primary objective and keep Ex-Im globally competitive, but would also mitigate concerns that financing favors particular companies and distorts trade.
Critics favoring eliminating Ex-Im frequently cite the prospect of taxpayer exposure to bank losses, a very real concern with any federal credit program. But the bank's 2012 reauthorization began a process of limiting this risk, and further improvements are possible.
The 2012 authorization led to a reevaluation of the bank's loss-estimation model, collection of point-in-time historical data on credit performance, and stress-test reporting to Congress. Exposure-limit increases of $10 billion were tied to new evaluations. It is by that model that lawmakers should seek to pass another reauthorization. Congress should scale back the bank's capacity, perhaps by $10 billion, unless it is clear Ex-Im needs a higher limit to meet certain benchmarks. Other reforms could add transparency and accountability to Ex-Im financing by, for example, mandating fair-value estimates of the agency by the Congressional Budget Office and reporting requirements to track progress.
While trade agreements and reduced burdens on U.S. companies are widely acknowledged to be the preferred ways to increase exports, Ex-Im acts under current market realities to offset the financing of foreign competitor ECAs. International negotiations may someday eliminate export-financing agencies, but with emerging nations not subject to broader frameworks on export finance and OECD countries increasingly acting outside of previous agreements, serious consideration should be given to ways the bank can stay highly competitive with foreign ECAs.
In the end, Ex-Im is not perfect, but it plays a role in a pragmatic trade policy. Reauthorization is an opportunity to limit it to protect taxpayers and make improvements so that Ex-Im can better meet its core mission.
Andrew Winkler is the director of housing finance policy at the American Action Forum.