Bid to Revive Export-Import Bank Runs Aground

While China and other major nations are aggressively beefing up export agencies, the Trump administration’s effort to do the same with a little-known government agency called the Export-Import Bank is running into a ditch.

Senate Republicans won’t even consider taking up House-passed legislation that would have helped resuscitate the long-comatose export bank and funded it for the next decade, leaving it, like the rest of the federal government, limping along on a month-to-month basis.

And that’s a big problem, bank proponents say, because countries all over the world are increasingly reaching for state tools like export agencies to boost their own exports and bolster their own strategic influence. Only the United States—which hasn’t had a fully functioning Ex-Im Bank since 2015, when Congress essentially neutered its deal-making ability—has chosen to sit out the fight. Proponents such as big manufacturers liken congressional inaction to “unilateral disarmament” in a global economic fight where state tools, from national champions to export support to managed trade, are becoming ever more important.

“The world has changed, and the U.S. just doesn’t have the toolkit,” said Gary Clyde Hufbauer of the Peterson Institute for International Economics. “Other countries know the U.S. is just not a player. The U.S. is basically out to lunch.”

But critics of the bank say it’s fine to let it sleepwalk along, and many would prefer it shut down altogether. Their fundamental arguments? Ex-Im does little to help U.S. exports at any rate, and trying to out-China China by underwriting an ever-growing pool of deals risks misallocating scarce capital for questionable returns.

“It’s the ‘they do it, too’ fallacy,” said Ryan Young of the Competitive Enterprise Institute. “The U.S. should not copy a Chinese policy mistake.”

Ex-Im was created during the Depression-era 1930s to make it easier for a cash-strapped world to afford U.S. goods, especially big-ticket items like vehicles and machinery. It played a similar role after World War II, when U.S. government financing helped U.S. exporters sell to a war-torn global market. By the 1970s, the United States and other developed countries—the only ones that really had government export agencies—reached a “gentlemen’s agreement” to use their state tools sparingly, avoiding a race to the bottom by only financing deals the private market couldn’t or wouldn’t.

Those days are long gone, and the gentlemen’s agreement is going the same route. Two big changes in the decade since the financial crisis amounting to what Ex-Im itself calls a “seismic shift” have completely altered the way export agencies work—and left the United States at an increasing disadvantage, the bank argues.

First, developing countries, especially China, now dominate the field, a sea change from decades past or even more recently—and they never signed on to agreements to limit export agencies’ use. Just before the financial crisis, in 2008, developing country export agencies accounted for just 13 percent of all export financing; today, they account for almost half. There are now at least 113 government export agencies globally, compared with just a handful when the gentlemen’s agreement was reached. China alone offered more export financing than the next three most active countries combined. Its $39 billion in official export credit in 2018 was more than 100 times greater than the $301 million worth of deals Ex-Im pushed out the door last year.

“The Chinese have supported more exports in the last two years than Ex-Im has in its entire 85-year existence,” Ex-Im President Kimberly Reed noted in a September speech.

Second, impelled by China’s no-holds-barred approach to economic statecraft, even developed countries such as Japan, South Korea, Italy, and the like are taking a much more expansive view of the role of their export agencies. Instead of being a lender of last resort, plugging the odd shortfall in trade financing, nearly every country is proactively using state finance to boost exports, grab a share of global supply chains, and snare strategic influence through economic influence. That’s most apparent in Chinese government support for Belt and Road projects, but almost all the major players—including Japan, South Korea, Canada, the U.K., and Italy—seek to do similar things on a smaller scale.

“Today, strategic objectives are increasingly intertwined with trade objectives and, as such, yield a more potent competitive threat to U.S. exporter competitiveness,” Ex-Im noted in its most recent report on the bank’s competitiveness.

Reed herself, who took over Ex-Im this year and has been fighting to get congressional reauthorization ever since, argues that the shifting global landscape means the United States is fighting an economic war at a disadvantage.

“It is a tool in the economic and strategic toolbox at a time when global competition has never been more intense,” she said in that same speech.

But many of the same political factors that led to Ex-Im’s lapse into near-paralysis in 2015 still prevail, even if the bank this year recovered the ability to do some deals. Many Democrats support the bank—the House reauthorization bill passed handily—but many progressive Democrats opposed the bill because they want to limit the bank’s ability to bankroll fossil fuel projects.

For the Republican Party, the Ex-Im Bank has long been a symbol of “crony capitalism,” essentially using public money to help a small number of huge companies, especially Boeing, that arguably don’t need government help to sell overseas. Another point is that Ex-Im mostly underwrites exports to developed countries, not the developing countries where China is buying influence with its own deals—making it harder to turn Ex-Im into a strategic tool.

Many Republicans are also worried that U.S. government money, in the form of Ex-Im loans, is essentially helping foreign firms, including Chinese state-owned companies, compete with U.S. businesses. Even President Donald Trump, formerly a critic who has done an about-face on Ex-Im since taking office, found the House legislation unsatisfactory.

“There is no traction right now for any bill” in the Senate, Young said—especially one that would reauthorize the agency for 10 years, giving little chance at congressional oversight in the meantime.

Further, critics of Ex-Im argue that government support has never affected more than a tiny fraction of U.S. exports even when the bank was operating at full throttle. Since the bank became all but moribund, U.S. goods exports held steady and then last year reached a record high of $1.7 trillion (though goods imports also reached a record high, leading to a record trade imbalance).

“When Ex-Im went away, exports still bloomed,” Young said. Even at full capacity, the bank used to underwrite only about $20 billion worth of deals a year—a tiny fraction of overall U.S. exports. “Almost 99 percent of U.S. exports happen without Ex-Im involvement,” he said.

Still, the continued Republican opposition to the Ex-Im Bank is jarring in one way because Congress, warmly supported by the White House, last year rejuvenated another government finance agency, the Overseas Private Investment Corp. (OPIC), with the express intent of trying to match China’s state-led economic statecraft.

“Politically, it is a contradiction which makes no economic sense. OPIC loans support exports, and Ex-Im does that more directly,” said the Peterson Institute’s Hufbauer. “To support one and not the other is just ridiculous.”

Finance is rarely the biggest obstacle to overseas trade, though having access to government-backed export support is increasingly becoming a prerequisite for many international tenders, leaving U.S. companies unable to bid for certain projects. But more and more countries are using their own export credit agencies to boost trade because there are so many headwinds to global trade growth otherwise, in part because of trade wars the Trump administration has started.

“Finance may not be the major restraint, but that’s the tool which countries have to try to deal with this global problem,” Hufbauer said. “What countries are doing is throwing their export agencies at the problem.”

Thanks to the stopgap funding measure reached late Thursday, Ex-Im can stay in business until late December, when it will again face the threat of extinction unless the Senate overcomes its objections to rebooting a program many Republicans have never warmed to. In the meantime, Ex-Im expects other countries to keep using their own export banks to grab inroads into markets for projects where U.S. firms sometimes cannot compete.

“The issue for the U.S. is whether it is a participant or just a bystander,” Hufbauer said. “And so far we’ve just been a bystander.”