A recent review by the Wall Street Journal of a Standard & Poor’s (S&P) credit analysis of Boeing in relation to the U.S. Export-Import (Ex-Im) Bank appears to have missed the point. The article sums up the report with the quote, “We don’t believe that the expiration of Ex-Im’s authorization in September would hurt Boeing’s credit quality or ability to make planned deliveries in 2014 and 2015.” However, this ignores the fact that this statement relates only to planes already in production being prepared for delivery. S&P goes on to conclude that alternative financing sources would not be able to match the demand for Boeing airplanes, and that Boeing would lose out on new orders of aircraft. In addition, it states that the effect of an Ex-Im Bank dissolution on Boeing’s credit quality would be significant, especially in sales to emerging markets or to start-up and financially weak airlines. Judging by 2014 data, Boeing’s new financing needs would total between $7 billion and $9 billion if it lost the support of the Ex-Im Bank.
This ‘misunderstanding’ seems to stem from a desire to portray the Ex-Im Bank—which has been quietly but effectively supporting U.S. manufacturing export strength since the New Deal, at no cost to U.S. taxpayers—as a useless, ‘crony capitalist’ leviathan that uses American tax dollars to pad the bottom line of already profitable companies.
Those who can’t bear to see cooperation between corporations and government, both liberals and conservatives alike, scold U.S. exporters such as Boeing, Caterpillar, and General Electric—not to mention over 3,400 small businesses and a total of 33,000 suppliers—for making use of Ex-Im funding. Liberal economist Dean Baker writes, “in some cases, the higher price will mean that Boeing will lose the deal to a competitor. That’s known as capitalism, it happens all the time.” For Baker, the only way to help workers is to redistribute wealth, not to create wealth, which is what the Ex-Im Bank does.
Moreover, Baker’s assessment oversimplifies the barriers facing Boeing. First, the company faces competition from Airbus, which also has the backing of European export credit agencies (ECAs) when selling to emerging markets with limited access to financing. Second, the Ex-Im Bank is not a subsidy; it is a loan to foreign buyers who wish to buy American-made goods. The bank does not artificially create demand for Boeing’s airplanes, it helps consumers satisfy existing demand. Criticizing the Ex-Im Bank is like attacking infrastructure spending on roads and harbors that help get goods from the producer to the consumer.
The most ridiculous misconception is that somehow big American airlines are going to lose business to recipients of Ex-Im financing. For one, U.S. airlines compete with these airlines only on a very small share of routes. In fact, because of international cabotage laws, countries can only compete on direct flights between the two countries. Second, as S&P explains, “U.S. airlines would likely face the same level of competition, but from Airbus aircraft … Because the rates the ECAs charge to guarantee loans are set by international agreement, we don’t expect to see much change in financing costs—even with less competition between the ECAs.”
In addition, critics treat Boeing’s profits like an admission of guilt, as if we wish that America’s largest companies did not succeed at developing innovative new products, employing tens of thousands of citizens, and earning a profit. They also ignore the fact Boeing is America’s largest exporter, generating a trade surplus of $71.1 billion in the aircraft industry in 2012.
The aircraft manufacturing industry is a cutthroat duopoly in which Boeing and Airbus constantly battle for market share. Even a shallow increase in Boeing’s costs could result in a big reduction in sales, which could cost thousands of American jobs. If this is a result of Boeing simply being less efficient or competitive than Airbus, so be it. But if it’s because our political system can’t stomach supporting government involvement as innocuous as export financing, we are doing American workers a serious disservice.
Critics seem to wield the fact that most of Boeing’s sales do not make use of Ex-Im financing as proof that Ex-Im financing is not needed. However, I take two conclusions away from the marginal rate of use.
First, Ex-Im financing is only being used where it is needed. The Bank’s role is to provide support 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. Most transactions do not need Ex-Im financing, but in other cases access to such finance is crucial.
Second, the number of buyers who choose to not seek export credit financing (for Boeing and Airbus, 48 and 56 percent of their deliveries, respectively, were eligible for but did not receive ECA financing in FY 2013) shows that, contrary to popular belief, Ex-Im interest rates are not significantly different from market rates.
The recent spike in Ex-Im activity (financing for Boeing’s deliveries peaked at 30 percent following the 2008-2009 downturn, which is now back down to around 18 percent as markets stabilize) speaks not to government largesse but to a global shortage of capital for financing large purchases resulting from the recent global recession. The Ex-Im Bank is needed more than ever to facilitate sales to purchasers who otherwise would either not buy planes or would turn to Airbus, especially given the intensification of foreign export finance competition.
Conservative vilification of any public/private partnership as ‘crony capitalism’ and liberal scorn for large companies who manage to turn a profit have led to attacks that attempt to discredit an institution that supports 255,000 jobs while being revenue neutral (the Ex-Im Bank returned $1.6 billion to federal coffers between 2008 and 2012.) Moreover, the jobs it protects are predominately in high-value added, export-oriented manufacturing sectors, which are vital to America’s future economic prosperity.
Is America really about to go down the path of anti-corporate, left-right populism (with the right reveling in our new-found freedom and the left reveling in big bad corporations being taken down a few pegs)? Let’s hope not. The stakes regarding global competition are too great to give in to such ideological extremism. It’s time for some radical pragmatism on behalf of the American economy and American workers. We’ve lost enough jobs overseas in the past decade. Let’s not give away more.