(Full Disclosure: this article was inspired by Gary Claude Hufbauer’s post in EconoMonitor on the same subject. You can find it at:
http://www.economonitor.com/piie/2012/03/05/reauthorize-the-export-import-bank-part-ii/ )

Supporting Ex-Im

There is a debate going on in Congress regarding the mandate of the US Export-Import Bank (“Ex-Im” from now on).  For those of you who are not familiar with Ex-Im, it is a publicly incorporated financial institution with the sole purpose of creating jobs by facilitating U.S. exporters through the provision of financing, insurance and credit guarantees. It has been in operation since 1934 and is an important contributor to U.S. exports. (1)

Ex-Im currently operates under a 2011 law that caps the bank’s commitments at $100 billion, and which is set to expire in April 2012. What is under debate is the effort to increase this cap to $135 billion dollars.

Research (2) indicates that for every billion dollars in commitments that Ex-Im assumes, the US economy generates 6,000 jobs, both directly in the export sector and through indirect benefits on the wider economy. Thus, extending the bank’s cap by $35 billion dollars would generate approximately 210,000 jobs.

This would seem to be a no brainer. Raise the cap on an institution which is not only generating good job growth in sectors we want to grow, but is also self-financing. Unfortunately, in America, even the no-brainers have a rough time of it.

There are currently two major obstacles to what would otherwise be a swift process of Congressional approval:

1. Delta Airlines has brought suit against the Ex-Im through the offices of the Air Transport Association of America. Delta alleges that the Ex-Im’s support of Boeing aircraft sales to  Air India hurts US carriers competing on those (lucrative) routes (3);
2. Tea Party Congressmen object to a public corporation being involved in private industry at all, and argue that companies like Boeing can rely on their own AAA or AA credit ratings for financing.

Fallacy, Stupidity and Astigmatism

Neither argument has the least bit of credibility. Let’s take them apart one at a time, Delta first:

• Delta’s argument is that Air India has a competitive advantage because it can buy cheap Boeing aircraft thanks to the financing of the Ex-Im. This ignores the fact that rival Airbus also finances their aircraft sales through similar means and that it is unlikely that the cost per aircraft for Air India would rise significantly if Boeing wasn’t receiving Ex-Im support;

• Delta also neglects to mention the loss to the economy should Boeing lose many export orders. Boeing Commercial Airplanes division employs 70,000 workers and 70% of its sales (4) are to overseas customers. It would be a major blow to the economy if Boeing were to be forced to shed jobs due to lost sales;

• Delta also ignores the long-term impacts of having Boeing at a competitive disadvantage versus Airbus. Potentially it could cause Boeing to go bankrupt, which would leave Airbus as the only large aircraft manufacturer in the world. We call that a monopoly. What does Delta think would happen to their cost for purchasing aircraft in such a situation?

As for the Tea Party Congressmen, the argument appears to be one of ideological purity, rather than of economic sense:

• The Ex-Im Bank’s mandate requires it to be self-financing, except for injections of seed capital, which are later repaid to the public treasury. Why then do they care about it? It is in no way a drag on public finances; quite the opposite, it is a boon for the economy as a whole and the export sector in particular, which leads to higher tax revenues;

• Boeing, and similar export giants, have such high credit ratings in part because the Ex-Im Bank takes on an important portion of the financing for their exports. Where they forced to seek open market loans for all of their financing needs, their debt-to-income and debt-to-asset ratios would be significantly worse, and they might not have such a good credit rating;

• Tea Party Congressmen ignore the thousand of smaller businesses who have neither a credit rating nor access to open market financing. Apparently, these would be abandoned entirely under Tea Party orthodoxy – so much for being the party of American business. The Ex-Im Bank is currently one of the only sources of financing for these smaller businesses, who contribute substantially to job growth and national wealth. In 2010 and 2011, the Ex-Im Bank authorized over $11 billion in financing directly to U.S. small businesses (5);

• It is important to point out the mandate of the Bank requires it to avoid competition with commercial lenders, it only takes on financing that the private sector does not want due to political or commercial risk. So Ex-Im is by no means taking away profit from commercial banks, but rather providing a vital “bridging” function where private sector finance is unwilling or unable to go;

• Tea Party Congressmen ignore or are ignorant of the fact that every single one of our major competitors, and most smaller nations as well, use similar mechanisms to provide their exporters with access to financing, usually at favorable rates. The US would be tying one hand behind its back by eliminating or curtailing the Export-Import Bank.

What Can We Do?

Congress is still debating the cap extension. If you believe, like I do, that the United States should actively encourage the development of export industries, should do everything possible to boost job growth and competitiveness, and should therefore extend the cap on Ex-Im commitments to $135 billion, then you can take the following steps:

• Write or phone your representative! They do listen to their constituents, as unlikely as that sometimes seems. Better yet, do both. At the bottom of this article is a “form letter” you can copy and paste into an email to your congressmen. They all have websites, you can find out what your representative’s is at www.congress.org;

• Post your views on social networks and get your friends involved. Feel free to reproduce this article;

• Write your local newspaper. Local papers are a good means of getting your views in print, more so than national papers. Feel free to write to them too!

• Write or phone your representatives again. Persistence pays off. You can also write or phone the White House. President Obama supports this cap extension, but I’m sure he’d be tickled to hear that you do to.

 Form Letter

Dear Senator (insert name);

I am writing to you to express my support for the reauthorization of the charter of the Export-Import Bank, and the extension of the commitments cap to 135 billion dollars.

The Export-Import Bank plays an important role in our economy, providing small businesses with access to financing, insurance and guarantees that allow them to successfully export their products and create jobs here at home. There are a number of reasons that I urge you to consider in supporting a speedy reauthorization:

• Independent research has shown that every billion dollars in Ex-Im commitments generates approximately 6,000 jobs in the US. Extending the commitment cap to 135 billion dollars could generate up to 210,000 jobs at home;
• The Bank does not compete with commercial lenders, it’s mandate is to offer loans that the private sector cannot or will not provide;
• The Bank is also mandated to provide financing to small businesses, which have no other means of accessing credit. In 2010 and 2011, the Bank extended over 11 billion dollars in loans to US small businesses;
• All of our major trading competitors use similar means to finance their exports. American industry and American workers would be at serious risk if the Export-Import Bank were to end its activities.

I urge you to vote in favor of the reauthorization of the Export-Import Bank along with the extension of the commitments cap to 135 billion dollars. This will bring great benefits to our nation, our state, our industry and our workers.

Thank you.

Very sincerely yours,

(Insert name)
(Insert home address, city, state, zip code)

 Sources:

(1) The Export-Import Bank of the United States homepage: www.exim.gov
(2) US Bureau of Labor Statistics, “Employment and Earnings Online and US Census Bureau, Annual Survey of Manufactures.”
(3) US District Court for the District of Columbia, Case No. 1:11-cv-02024-JEB, Air Transport Association of America, Inc., et al, Plaintiff, vs. Export-Import Bank of the United States, et al, Defendant.
(4) Platzer, Michaela D., “US Aerospace Manufacturing: Industry Overview and Prospects”, 3 December 2009.
(5) Quarterly date of the Export-Import Bank of the United State: http://www.exim.gov/open/index.cfm#downdata