10 Myths About the “Benefits” of the Export-Import Bank
When a company defaults, American taxpayers foot the bill. When a company earns money from the transaction, it pockets the profits.
Ex-Im and its supporters claim the bank’s activities are a major benefit to America’s economy, but more than 98 percent of products and services the U.S. exports are financed without any involvement from Ex-Im. In reality, the vast majority of Ex-Im’s taxpayer-funded benefits go to only a handful of giant corporations.
In June 2015, thanks to an increased number of lawmakers who recognized it was time to stop subsidizing a few well-connected special corporations on the backs of taxpayers, Ex-Im’s authorization lapsed. Unfortunately, those corporations’ lobbyists and other special interests eventually won–and Ex-Im was reauthorized late last year.
Here are a few of the common mischaracterizations that special interests are spreading about Ex-Im, as well as the facts that the special interest groups aren’t sharing:
Ex-Im operates without any cost to taxpayers.
Billions of taxpayer dollars are on the line. In May 2014, the nonpartisan Congressional Budget Office (CBO) debunked the myth that Ex-Im is a money maker. CBO found that, when judged using standard industry accounting, Ex-Im is actually be a net loss to taxpayers to the tune of $200 million per year, or $2 billion over 10 years.
This means Ex-Im contributes to our national debt. The U.S. Treasury guarantees Ex-Im loans, so when a loan is unpaid, taxpayers are on the hook. As noted above, CBO estimates that Ex-Im’s losses will increase the deficit by $2 billion over the next decade. While Ex-Im revenue from interest and fees does go to the general Treasury account, the bank currently owes the Treasury more than $24 million.
Ex-Im creates tens of thousands of jobs.
Ex-Im and its supporters claim the bank creates jobs but they do not consider the jobs it destroys through unfair competition. The bank uses faulty math and ignores economic realities to justify its claims. Its methodology has been widely criticized by government accountants, and Ex-Im proponents have even been caught inflating the amount of jobs it supports in the United States. In fact, Ex-Im’s data on jobs were so questionable that the agency erased the data from its website in 2015.
There are a number of problems with Ex-Im’s claims about jobs:
- First, Ex-Im fails to take into consideration the impact of giving foreign companies cheap financing to compete with U.S. businesses. As the independent Government Accountability Office has stated, “government export finance assistance largely shift(s) production among sectors within the economy rather than raise(s) the overall level of employment in the economy.”
For example, Ex-Im touted job gains at Boeing when it financed the purchase of wide-body aircraft by Emirates Airline and Air India, but failed to mention the 7,500 U.S. airline industry jobs that were potentially lost as a result. Ex-Im also counted export jobs when U.S. companies exported equipment to an Ex-Im financed mine in Australia, while ignoring the thousands of mining jobs threatened in Minnesota.
- Second, Ex-Im’s data on jobs are incredibly limited because Ex-Im fails to do even cursory research about what happens after making a loan. Ex-Im has followed up with economic analyses on less than 1 percent of all transactions. According to Delta Airlines, “In approximately 17,000 Ex-Im transactions over the past five years, the Bank has conducted a detailed economic impact analysis on the impact to U.S. jobs only 24 times.”
- Third, numbers reported by Ex-Im aren’t a tally of actual jobs, but estimates generated by a stagnant economic multiplier model. Ex-Im’s flawed job estimates are based on the same bogus models that were used to argue the “stimulus” would create jobs. This Keynesian model simply says that government funding creates jobs without actually taking data or real economic evidence into consideration.
Ex-Im subsidies boost the U.S. economy.
Subsidizing exports doesn’t help our economy, it hurts. Academic research shows that export subsidies slow domestic growth by helping foreign competitors. Studies have found that export subsidies have a net-negative impact on a country’s economy because they put domestic competitors and customers at a disadvantage.
According to the World Trade Organization, “The overall impact of the export subsidy on the home country is decidedly negative. Domestic consumers pay a higher price for a product that they are blocked from sourcing at a lower price from the world market. This leads to welfare losses for consumers.”
Even if one ignores the economic realities about the negative impacts of export subsidies, Ex-Im’s benefits go to so few companies that its effect is negligible. In 2014, less than 1 percent of U.S. exporters were supported by Ex-Im.
Ex-Im primarily supports small businesses.
In 2015, only a quarter of the bank’s financing benefited small businesses. According to Ex-Im’s own data, the vast majority of Ex-Im subsidies go to profitable big businesses that compete with other U.S. companies – the majority of which do not enjoy Ex-Im financing. In fact, 64 percent of the bank’s activities benefited just 10 large companies.
Also, Ex-Im defines “small businesses” differently than most people would think. In an effort to inflate their claims about how many small firms they help, Ex-Im counts any business with up to 1,500 employees and revenue up to $21.5 million as “small.” That is far higher than other government definitions of small businesses. Obamacare, for instance, defines a small business as 50 employees.
As a result, reports have shown that Ex-Im officials and supporters have exaggerated how many small businesses receive benefits by counting companies owned by some of the richest people in America. According to one story, “The U.S. Export-Import Bank has mischaracterized potentially hundreds of large companies and units of multinational conglomerates as small businesses… A Reuters analysis showed companies owned by billionaires like Warren Buffett and Mexico’s Carlos Slim, as well by Japanese and European conglomerates, were listed as small businesses and Ex-Im acknowledged errors in its data in response to those findings.”
If Ex-Im disappears, it will result in immediate job losses.
When Ex-Im wasn’t reauthorized for part of 2015, there was no impact on current financing arrangements or contracts. As the nonpartisan Congressional Research Service noted, allowing the authorization to sunset would trigger an orderly wind down of Ex-Im, allowing the bank to continue “administering its assets and collecting any obligations it holds.” Ex-Im still serviced existing loans but was barred from issuing any new taxpayer-backed guarantees. Thus, no existing financing changed.
Although special interests triumphed late last year and were able to convince lawmakers to reauthorize the bank, it’s not operating at full capacity. Currently, the Ex-Im Board of Directors lacks a quorum, which means it cannot approve deals of more than $10 million. Some in Congress have talked about using Congress’ authority to allow Ex-Im to change the quorum requirements.
But, the inability of Ex-Im to function at “full capacity” hasn’t had the detrimental impact the bank’s supporters would have you believe. In fact, Boeing, the bank’s largest recipient (receiving almost a third of Ex-Im’s financing), has a backlog of roughly $472 billion in orders for its commercial business.
Ex-Im counteracts unfair trade practices by matching the financing that other governments provide to their exporters.
Ex-Im tilts the playing field against 98 percent of all U.S. exports because they aren’t subsidized. Furthermore, less than a third of the bank’s activities are categorized as counteracting foreign subsidies-and hence are justified by Ex-Im as “leveling the field.”
Ex-Im picks winners and losers and creates unfair competition for the firms, workers, and exporters who are competing with Ex-Im-backed companies here and abroad. That means loss of jobs and opportunities for the losers. As such, Ex-Im creates a distinctly un-level playing field.
Without Ex-Im, U.S. exports would decline.
Less than 1 percent of exporting U.S. businesses have relied on Ex-Im. Ex-Im claims that between 2007 and today, 8,973 businesses have used Ex-Im financing to facilitate export sales, including 5,813 small businesses. In 2014 alone, some 305,000 U.S. companies exported goods (and/or services) to foreign countries, including 297,995 small and medium-sized businesses. Since 2007, more than 2.4 million U.S. businesses have been involved in exporting. Only 8,973 of those used Ex-Im.
Ex-Im only provides lending when private banks won’t.
While Ex-Im says it only provides loans if there is a lack of private financing, some funding decisions have been made based on other criteria-like political connections and even cash kickbacks. Recent evidence has shown that four Ex-Im officials were removed amid allegations of bribery in 2014. According to the Wall Street Journal, “One employee, Johnny Gutierrez, an official in the short-term trade finance division, allegedly accepted cash payments in exchange for trying to help a Florida company obtain U.S. government financing to export construction equipment to Latin America.”
Additionally, Ex-Im has used taxpayer money to back risky projects that private banks wouldn’t touch. For instance, Ex-Im reportedly partnered in a $400 million debt deal with an Australian company that has blown through its money, defaulted on loans, and lost “nearly a third of its total market capitalization.”
The fact that credit and financing are not available for some investments is not a market failure, but rather a protection. Companies are free to export their goods to unstable markets, but should not expect the taxpayer to shoulder the risk.
And despite their claims to the contrary, the large companies that benefit from the subsidies were still able to find financing during the Ex-Im’s lapse.
Ex-Im is the only institution willing to support such large financing amounts in emerging markets.
Ex-Im is not a lender of last resort. Private financing is typically available for even Ex-Im’s largest transactions. Private financing is a widely available option in most of the bank’s transactions. New disclosure requirements have forced Ex-Im to publicly release its justifications for financing. These disclosures revealed that the majority of Ex-Im’s largest deals could have been financed by the private sector at a marginally higher cost to the companies, but without exposing taxpayers to the risk.
After reviewing the disclosures, Delta Airlines testified to Congress in 2014, “the 75 commercial aircraft guarantees the Bank has authorized over the past two full financial years included only 17 (less than 25%) as a result of limitations in private-sector financing. Healthy foreign airlines such as Emirates, Etihad, Ryanair, and Air China, as well as lessors such as Russia’s VEB Leasing, are going to Ex-Im because they get better deals than the private market would provide – not because they struck out everywhere else.”
Ex-Im loan guarantees and subsidies are not corporate welfare.
Ex-Im provides special treatment and taxpayer-subsidized benefits to a chosen handful of large companies and their suppliers, leaving their competitors at a disadvantage. These beneficiaries then spend time and money lobbying elected officials to continue their special benefits. That is the very definition of corporate welfare.