Dump The Export-Import Bank
by Aaron Lukas and Ian Vásquez
Aaron Lukas is an analyst at the Cato Institute's Center for Trade Policy Studies. Ian Vásquez is the director of Cato's Project on Global Economic Liberty. They are co-authors of the new Cato study, "Rethinking the Export-Import Bank."
Last May, the president of a prominent Washington think tank told a Senate committee that the U.S. Export-Import Bank needs a bigger budget because foreigners are "eating our lunch." He was followed on the panel by two recipients of Ex-Im money who -- surprise! -- confirmed that they just couldn't cut it without subsidized export financing. With the Ex-Im Bank's temporary authorization expiring this month, Congress again faces the question: Is this agency necessary? The Bank supposedly benefits the country in three ways: First, by "leveling the playing field" for U.S. exporters when their foreign competitors receive government support. Second, by creating jobs. And third, by "improving" the U.S. trade balance.
None of those claims holds up under scrutiny.
For starters, foreign exporters are hardly "eating our lunch." The United States exported roughly twice as much in 2000 as it did in 1990. By comparison, Germany's exports were 34 percent higher, Japan's 66 percent higher, the U.K.'s 51 percent higher, and France -- by most accounts a generous user of export credits -- posted a gain of only 36 percent. The fact is that U.S. exporters don't suffer much from subsidized competition. Indeed, only a third of Ex-Im Bank financing requests -- representing a fraction of one percent of all U.S. exports -- even allege that they're in response to foreign subsidies.
Only Canada managed to surpass the United States in terms of relative export growth. Yet according to a 1997 GAO analysis of official export support, Canada and the United States subsidized only 2 percent of their exports. By contrast, Japan's export credit agencies supported 32 percent of total exports, France's supported 18 percent, and Germany's 9 percent. In other words, the relationship between generous government export supports and the overall performance of national exporters has not fit the pattern predicted by the Ex-Im Bank's supporters: Countries with a relatively small percentage of subsidized exports have been the strongest exporters. Another myth is that the Ex-Im Bank creates jobs. In reality, it often simply displaces private-sector sources of finance. There's no reason to think that the Ex-Im Bank knows how to better use financial resources than the consumers, investors, and businesses those resources are taken from. In fact, by overriding the market, the Bank directs credit to less efficient uses, creating distortions in the national economy, and imposing opportunity costs that are surely higher than the added value of the Bank's intervention.
Assume that the Bank succeeds in raising the level of U.S. exports in some particular year. What happens then? Foreign buyers must have U.S. dollars to complete their purchases. They obtain those dollars by buying them in international currency markets, thus bidding up the price of dollars. The stronger dollar does two things. It makes exporting more difficult for producers that do not have subsidized financing, thus reducing somewhat the total amount of non subsidized U.S. exports. A stronger dollar also makes imports more attractive to U.S. consumers. The net effect is that imports rise right along with exports. Some jobs are created in the export sector, while some are lost to import competition and some to reduced sales among unsubsidized exporters. The cumulative impact on employment is indeterminate and weak.
The same analysis holds for the trade deficit. And even if subsidized export credit could alter the trade balance, it is far too small to make any serious impact. Only about 1 percent of all U.S. goods and services exports were backed by the Ex-Im Bank last year. Thus, for reasons of size alone, those who mistakenly view the U.S. trade deficit as a sign of weakness rather than as a sign of strength should not expect the Ex-Im Bank to correct the perceived malady.
In short, none of the reasons offered for the Bank's continued existence is convincing. Private credit markets are far deeper and are more accessible than during the Great Depression when the Bank was founded. Generous export subsidies have not translated into better overall export performance for those countries that offer them. Export subsidies don't increase employment nor do they have any significant impact on the trade balance. Finally, it is neither fair nor constitutional that taxpayer dollars are being used to support particular businesses, including Enron, GE, and numerous other multibillion-dollar beneficiaries. Indeed, in FY2000, the top 10 recipients of the Bank's loans and long-term guarantees were large corporations that got 86 percent of those services. Definitely an agency whose time has passed.
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Published on Wednesday, May 15, 2002 by CommonDreams.org
The Export-Import Bank:
Corporate Welfare At Its Worst
by Rep. Bernie Sanders (I-VT)
This country has a $6 trillion national debt, a growing deficit and is borrowing money from the Social Security Trust Fund in order to fund government services. We can no longer afford to provide over $125 billion every year in corporate welfare - tax breaks, subsidies and other wasteful spending - that goes to some of the largest, most profitable corporations in America.
One of the most egregious forms of corporate welfare can be found at a little known federal agency called the Export-Import Bank, an institution that has a budget of about $1 billion a year and the capability of putting at risk some $15.5 billion in loan guarantees annually. At a time when the government is under-funding veterans' needs, education, health care, housing and many other vital services, over 80% of the subsidies distributed by the Export-Import Bank goes to Fortune 500 corporations. Among the companies that receive taxpayer support from the Ex-Im are Enron, Boeing, Halliburton, Mobil Oil, IBM, General Electric, AT&T, Motorola, Lucent Technologies, FedEx, General Motors, Raytheon, and United Technologies.
You name the large multinational corporation, many of which make substantial campaign contributions to both political parties, and they're on the Ex-Im welfare line. Needless to say, many of these same companies receiving taxpayer support pay exorbitant salaries and benefits to their CEOs. IBM, for example, gave their former CEO Lou Gerstner over $260 million in stock options while they were lining up for their Ex-Im handouts.
The great irony of Ex-Im policy is not just that taxpayer support goes to wealthy and profitable corporations that don't need it, but that in the name of "job creation" a substantial amount of federal funding goes to precisely those corporations that are eliminating hundreds of thousands of American jobs. In other words, American workers are providing funding to companies that are shutting down the plants in which they work, and are moving them to China, Mexico, Vietnam and wherever else they can find cheap labor. What a deal!
For example, General Electric has received over $2.5 billion in direct loans and loan guarantees from the Ex-Im Bank. And what was the result? From 1975-1995 GE reduced its workforce from 667,000 to 398,000, a decline of 269,000 jobs. In fact, while taking the Ex-Im Bank subsidies, GE was extremely public about it's "globalization" plans to lay off American workers and move jobs to Third World countries. Jack Welch, the longtime CEO of GE stated, "Ideally, you'd have every plant you own on a barge."
General Motors has received over $500 million in direct loans and loan guarantees from the Export-Import Bank. The result? GM has shrunk its U.S. workforce from 559,000 to 314,000.
Motorola has received almost $500 million in direct loans and loan subsidies from the Ex-Im Bank. The result? A mere 56 percent of its workforce is now located in the United States.
In fact, according to Time Magazine, the top five recipients of Ex-Im subsidies over the past decade have reduced their workforce by 38% - more than a third of a million jobs down the drain. These same five companies have received more than 60 percent of all Export-Import Bank subsidies. Boeing, the leading Ex-Im recipient, has reduced its workforce by more than 100,000 employees over the past ten years.
Here are a few examples of your Ex-Im taxpayer dollars at work:
The Export-Import Bank has provided an $18 million loan to help a Chinese steel mill purchase equipment to modernize their plant. This Chinese company has been accused of illegally dumping steel into the U.S. - exacerbating the crisis in our steel industry.
Since 1994, the Export-Import Bank has provided $673 million in loans and loan guarantees for projects related to the Enron Corporation, leaving taxpayers exposed to $514 million. The Ex-Im Bank approved a $300 million loan for an Enron-related project in India even though the World Bank repeatedly refused to finance this project because it was "not economically viable."
The Export-Import Bank is subsidizing Boeing aircraft sales to the Chinese military. According to the President of Machinists' Local 751: "Boeing used to make tail sections for the 737 in Wichita, but they moved the work to a military factory in Xian, China. Is this Boeing's definition of free trade, to have American workers compete with Chinese labor making $50 a month under military discipline?"
The Ex-Im Bank insured a $3-million loan to aid General Electric build a factory where Mexican workers will make parts for appliances to export back to the United States. This project is responsible for the loss of 1,500 American jobs in Bloomington, Indiana.
And on and on it goes. The bottom line is that if the Export-Import Bank cannot be reformed so as to become a vehicle for real job creation in the United States, it should be eliminated. American citizens have better things to do with their money than support an agency that provides welfare for corporations that could care less about American workers.
Editors Note: Congressman Bernie Sanders (I-VT) has the best web site of any member of Congress - bernie.house.gov
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