Top Competitors Continue to Outinvest United States in Export Credit Financing

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Global competition in export credit financing has become increasingly formidable, with foreign competitors enjoying substantial support from their countries’ export credit agencies, as ITIF explains in Understanding the Importance of Export Credit Financing to U.S. Competitiveness. The United States’ Export-Import Bank (Ex-Im Bank) fills an important role in leveling the playing field for U.S. exporters by matching credit support that other nations provide to their exporters, thus preventing foreign exporters from enjoying undue advantage. This ensures that U.S. exporters are able to compete against foreign competitors based on the quality and price of their products and services, and not lose sales because a foreign government has helped a foreign competitor by providing superior financing terms to a potential buyer.

Unfortunately, other countries—and principally America’s top economic competitors in Europe and China—continue to invest significantly more than the United States does in export credit financing, both as a share of GDP and, in China’s and Germany’s case, even current dollars.

In fact, from 2007 to 2011, China invested $227.6 billion in cumulative new medium and long-term official export credit volumes compared to the United States’ $70.6 billion, according to data from the U.S. Export-Import Bank’s 2011 Report to the U.S. Congress on Export Credit Competition and the Export-Import Bank of the United States. In other words, over the past five years, China has invested over three times as much in export credit financing as the United States in current dollars, and 6.6 times as much as a share of GDP. And though Germany invested just slightly more in current dollars (about $5 billion more) than the United States from 2007 to 2011, as a share of GDP Germany invested four and a half times more.

Examining the year 2011 alone (see chart), China invested over twice as much in current dollars and nearly five times as much in export credit financing than the United States did as a share of GDP. India invested four and a half times more as a share of GDP than the United States. France, Germany, and the United Kingdom collectively invested almost three times as much as the United States as a share of GDP, while investing $16 billion more in total new medium- and long-term official export credit volume. For its part, Germany in 2011 invested four times as much in export credit financing as the United States did.

2011 Export Credit Volumes

This intensified foreign competition in export credit financing is just one more example of how America’s competitors have ramped up their efforts to win in global export markets. But as Ex-Im Bank Chairman Fred Hochberg testified before the Senate Banking Committee in May 2011, the United States “is clearly outgunned when it comes to foreign [export credit] competition.” Indeed, the United States needs to continue to take seriously the challenges posed by the aggressive export credit financing policies of its top competitors and ensure that the U.S. Ex-Im Bank remains competitive and well-functioning, in part by increasing its authorization levels and swiftly confirming its Board Members.

While President Obama signed on May 30, 2012 Congressional legislation that reauthorized the Ex-Im Bank for three additional years (to September 30, 2014, the end of the next Fiscal Year) and raised its aggregate lending authority to $140 billion by 2014, much more needs to be done. In particular, on July 20th of this year, the terms of Ex-Im Bank Chairman Fred Hochberg and two Ex-Im Board Members will expire. The President has re-nominated Chairman Hochberg for another four-year term, however Congress will need to confirm his nomination (as well as those of the other two Board Members whose terms are expiring). It’s vital that Congress do this quickly, for the Ex-Im Bank has a total of five members, and would not be able to do business without an active quorum of at least three members. In other words, the Ex-Im Bank could be in a position of not being able to issue export credit beyond July 20th if its Board Member(s) are not confirmed.

Beyond this, to adequately respond to intensifying foreign export credit competition, Congress should raise the Ex-Im Bank’s aggregate authorization limit to at least $200 billion. This does not mean that taxpayers would have to foot the bill for this increase in lending authorization, as ITIF writes in The Export-Import Bank Works for America: Responses for 18 Arguments for Cutting Ex-Im’s Authorization. The Ex-Im Bank is an independent federal government agency that operates at no cost to U.S. taxpayers and has in fact returned $1.6 billion to the U.S. Treasury above and beyond the cost of its operations over the past five years. Thus, increasing the Bank’s statutory lending authority from its $140 billion (by 2014) exposure cap would not add to the national debt.

In summary, export credit financing is a critical tool for boosting U.S. exports, boosting U.S. job growth, narrowing the trade deficit, and revitalizing the U.S. economy. In 2011, Ex-Im Bank-backed transactions supported an estimated $41 billion worth of American exports and an estimated 290,000 American jobs at more than 3,600 U.S. companies. And since 2008, the Ex-Im Bank has assisted in creating or sustaining more than one million American jobs. Many of these jobs are at SMEs; in fact, more than 85 percent of Ex-Im’s transactions in recent years have directly benefited small businesses. Thus, the Ex-Im Bank plays an invaluable role in enabling U.S. exporters to compete on a more level playing field in commercial markets where current and future competitors continue to enjoy aggressive support from their countries’ export credit agencies.

Yet some have argued that the United States should unilaterally abandon export credit financing activities on the principle that it constitutes industrial policy or government picking winners. Others fret because they don’t like the fact that Beijing’s aggressive embrace of export credit financing is setting the terms and pace of global export financing policy—though it does. (Nor, as this blog has shown, is China the only country that aggressively uses export credit financing.) This would be akin to saying during the Cold War, “to let Moscow set the terms and pace of military spending in the United States is foolhardy at best.” Would anyone say that it’s okay and prudent to let China (or Russia before it) outinvest the United States in defense expenditures, moreover to unilaterally abandon our investment in a sound defense? But that’s exactly what those who advocate for the United States to unilaterally abandon the use of export credit financing activities are calling for. The simple reality is that America’s economic competitors are in the game to win and if the United States unilaterally disarms the U.S. Ex-Im Bank, the only result will be fewer U.S. exports and the jobs dependent on them.

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About the author

Stephen Ezell is a Senior Analyst with the Information Technology and Innovation Foundation (ITIF), with a focus on innovation policy, international information technology competitiveness, trade, and manufacturing and services issues. He is the co-author with Dr. Atkinson of "Innovation Economics: The Race for Global Advantage" (Yale, 2012). Mr. Ezell comes to ITIF from Peer Insight, an innovation research and consulting firm he co-founded in 2003 to study the practice of innovation in service industries. At Peer Insight, Mr. Ezell co-founded the Global Service Innovation Consortium, published multiple research papers on service innovation, and researched national service innovation policies being implemented by governments worldwide.