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Securing the Competitiveness of America’s Export Industries

trade

With Export-Import (Ex-Im) Bank reauthorization once again before Congress—its current authorization expires on June 30, 2015—it’s a good moment to take stock of the critical role the Bank plays in ensuring the competitiveness of America’s traded sector companies and industries. As the official export credit agency of the United States, the Ex-Im Bank plays a fundamental role in ensuring the global competitiveness of U.S. exporters, as ITIF described in its 2014 report The Export-Import Bank’s Vital Role in Supporting U.S. Traded Sector Competitiveness. Specifically, the Ex-Im Bank fills two key roles. First, it provides financing—in the form of loans or loan guarantees—to foreign purchasers of American products and services for export transactions that might not otherwise occur when private commercial lenders are unable or unwilling to provide financing to foreign purchasers of U.S. exports. Second, the Bank levels the playing field for U.S. exporters by matching the credit support that other nations provide, ensuring that U.S. exporters are able to compete based upon the price and performance of their products.

Put simply, the Bank makes possible U.S. exports that otherwise would not occur without its assistance. In FY 2013, the Bank authorized $27 billion in export credit authorizations which supported over $37 billion in U.S. exports of a wide range of goods, from airplanes and power-generation equipment to software and services. Those Ex-Im Bank-enabled exports support U.S. jobs: 205,000 in FY 2013 alone and more than 1.2 million over the past five years. In 2014, the Ex-Im Bank’s authorizations supported 6,190 jobs per $1 billion of U.S. exports. In other words, with one in three U.S. manufacturing jobs depending on exports, the Bank plays a foundational role in supporting both the creation and retention of U.S. jobs.

And while some erroneously charge that Ex-Im represents corporate welfare by only supporting “big businesses,” the reality is that the vast majority of businesses whose exports the Ex-Im Bank supports are small-medium sized enterprises (SMEs). In fact, in FY 2013, 90 percent of Ex-Im Bank transactions supported SME exports, with 3,347 of the 3,747 transactions approved by the bank directly supporting small businesses. And even when the Bank supports larger companies’ exports—Boeing’s aircraft or GE’s locomotives, for example—it’s not just Boeing, but the almost 16,000 suppliers, 7,000 of them SMEs, in Boeing’s value chain, that benefits. In total, the Bank’s export credit assistance supported exports from over 33,000 small businesses in 2013.

Nevertheless, some have charged that the Ex-Im Bank’s activities occur at the expense of “taxpayers who are forced to subsidize corporate profits.” Yet the reality is that America’s taxpayers are actually the beneficiaries of the Ex-Im Bank’s activities. Indeed, the Bank operates at no cost to the U.S. Treasury; and in fact the Bank has earned $2 billion more than the cost of its operations after covering loan loss reserves over the past five years. Moreover, the fact that the Bank’s default rate has been less than 1 percent since the Bank’s inception means that, while the Bank is stepping in to provide financing assistance in circumstances when commercial banks will not, it is not taking excessive risks that would in theory expose American taxpayers to “runaway” liabilities.

Unfortunately, despite the critical role export credit finance plays in helping to boost America’s exports and empower its traded sector competitiveness, virtually all U.S. competitors are investing significantly more as a share of their GDP than the United States in providing export credit assistance. For instance, as a share of GDP, Korea’s investment in export credit in 2013 exceeded the United States by 14 times, while Germany’s investment exceeded America’s by 7 times. And over the past five years, China has issued twice as much export credit assistance in current dollars than the United States, and four times as much as a share of GDP. In fact, as Loren Thompson writes in Forbes, China has increased its aid to exporters by 800 percent over the last ten years, with The China Development Bank now providing more financing in a typical year than Ex-Im’s total authorized credit limit. With more than 60 nations now operating export credit agencies, the reality is that export credit competition is not going away—rather, it is increasing.

Moreover, as the 2014 Report to the U.S. Congress on Export Credit Competition reveals, countries’ use of unregulated export credit has significantly expanded. In fact, whereas 15 years ago 100 percent of countries’ official export credit assistance operated under international rules established through the Organization for Economic Cooperation and Development to ensure that companies could compete on free-market factors such as price and quality rather than on aggressive government financing, in FY 2013 that figure plummeted to 34 percent. In other words, only $97 billion of the total $286 billion in new export credit issued by countries worldwide in FY 2013 was governed by global rules.

Those who argue that the United States should unilaterally disarm and disband the Ex-Im Bank would put U.S. exports in a dangerously precarious position. If the United States does not provide export credit assistance to foreign purchasers of U.S. products and services in situations where private sector lenders are unable to do so, the simple reality is that in many cases these would-be buyers will turn to European or Asian manufacturers. Boeing and Cisco sales would simply be replaced by Airbus and Huawei sales. As Kostya Zolutsky, Boeing’s Managing Director of Capital Markets and Leasing, frames it plainly and clearly, “If foreign airlines cannot depend on Ex-Im support, they will simply compete against U.S. airlines using Airbus airplanes.”

In short, failure to reauthorize the Ex-Im Bank while expanding its lending cap will have only one set of results—fewer U.S. exports, fewer U.S. jobs, and higher U.S. trade deficits. Therefore, Congress should move quickly to authorize a new five year term for the Ex-Im Bank, extending it through 2020. Moreover, Congress should raise the Ex-Im Bank’s current exposure limit (i.e., lending cap) of $140 billion to at least $180 billion by 2020, ensuring that American exporters don’t fall behind foreign competitors whose countries are investing substantially more in export credit finance as a share of their GDP than the United States.

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About the author

Stephen Ezell is vice president, global innovation policy, at ITIF. He focuses on innovation policy as well as international competitiveness and trade policy issues. He is coauthor of Innovating in a Service-Driven Economy: Insights, Application, and Practice (Palgrave MacMillan, 2015) and Innovation Economics: The Race for Global Advantage (Yale, 2012). Ezell holds a B.S. from the School of Foreign Service at Georgetown University.