Congress Should Reauthorize Ex-Im Bank to Level the Playing Field for U.S. Companies

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    Jul 10, 2014

    In one of the more unusual twists in Washington, the Tea Party and conservative Republicans in Congress are taking on the nation’s largest business associations, labor unions, and most Democrats in a battle to shut down the Export-Import (Ex-Im) Bank of the United States. The eight-decade-old Ex-Im Bank’s charter will expire September 30 unless Congress votes to reauthorize the agency.
    The Ex-Im Bank helps U.S. companies sell their products overseas by providing low-cost loans and loan guarantees to foreign businesses to make it easier for them to buy U.S. goods and services. The agency in fiscal year 2013 authorized $27 billion to support U.S. exports totaling roughly $37 billion, including airplanes, power-generating equipment, and oil and gas projects. The bank earned interest and fee income of just over $1 billion, which it turned over to the U.S. Treasury.

    The harshest critics charge that the Ex-Im Bank creates “crony capitalism” that supports exporting firms over companies that sell domestically. They say it interferes in the market and provides the government with an opportunity to pick winners and losers. Conservative members of Congress argue that it causes risks for taxpayers and say that exporters should look instead to the private sector for the loans they need to fund exports.  

    The new House of Representatives Majority Leader, Kevin McCarthy, recently told Fox News that he would allow the Ex-Im Bank’s charter to expire. The California Republican said “one of the biggest problems with government is they go and take hard-earned money so others do things the private sector can do. That’s what the Ex-Im Bank does.” McCarthy’s opposition strengthens the hand of Financial Services Committee chair Jeb Hensarling, who says his goal is to wind down the agency.

    Ex-Im Bank supporters, which include most of the country’s business associations as well as the Barack Obama administration, argue that shutting down the bank could result in billions of dollars of lost foreign orders and could prompt some companies to move their operations to countries that provide export financing. They say the agency makes it possible for U.S. firms to compete with their foreign competitors, many of whom get government aid including financing at below market rates. 

    The heads of the U.S. Chamber of Commerce and the National Association of Manufacturers argued in a recent letter to the Wall Street Journal, whose editorials have called for “pulling the plug” on the agency, that the Ex-Im Bank levels the global playing field by making it possible for U.S. companies to compete in an environment in which some 60 countries have issued over $1 trillion in trade financing in recent years. 

    These two business groupings, which have mounted a public relations campaign urging Congress to support Ex-Im Bank reauthorization, also rejected the argument that the bank mainly helps multinationals. They said that last year the agency approved more than 3,400 small business transactions and that small businesses accounted for almost 90 percent of its transactions in 2013.

    “If Ex-Im is not reauthorized, products of all sizes and shapes, from planes to medical equipment, will still be purchased overseas,” the heads of the two organizations said. “They just will not be produced in the U.S. by American workers.”

    In a letter to members of Congress signed by 835 business associations from across the United States, the signatories argued that failure to reauthorize the Ex-Im Bank would amount to “unilateral disarmament”  in the face of far-more-aggressive export credit agencies in countries like Brazil, China, France, Germany, and South Korea.

    House Democrats, who for the most part support the agency, introduced legislation in late June that would reauthorize the Ex-Im Bank for seven years and boost its lending cap to $175 billion, significantly higher than the $140 billion limit approved in 2012. 
    The Ex-Im Bank has a critical role to play in the larger U.S. rebalance toward the Asia Pacific. Trade and investment relations serve as a critical component of U.S. ties to the countries of Southeast Asia, and few other regions offer U.S. companies as many opportunities. These countries for the most part have rapidly growing economies and emerging middle classes with whom U.S. products are popular. 

    The United States ranks as the Asia Pacific’s fifth-largest trading partner, but economic relations could be more robust. The U.S. market share has dropped about 10 percent over the past two decades, while the region’s trade ties with China have soared. For the United States to boost its role in the region, it is critical that the 12-nation Trans-Pacific Partnership free trade agreement be completed soon because it will help open markets for U.S. products and convince governments in the region that Washington is competing in the Asia Pacific not only politically and militarily but commercially as well.

    The Ex-Im Bank has an important complementary role to play by helping U.S. companies compete against rivals from China, Japan, South Korea, and European nations whose companies benefit from cheap loans from their versions of the bank. In the interest of promoting U.S. exports and supporting American jobs, Congress should set aside the acrimonious arguments against the Ex-Im Bank and vote to reauthorize it before its charter expires at the end of September.

    (This Commentary originally appeared in the March 21, 2014, issue of Southeast Asia from Scott Circle.)

    Murray Hiebert is senior fellow and deputy director of the Sumitro Chair for Southeast Asia Studies at the Center for Strategic and International Studies in Washington, D.C.

    Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).
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