When Congress allowed the Export-Import Bank’s charter to expire in July 2015, it looked like a victory against crony capitalism.
Congress, it seemed, had finally come to view the federally backed financial institution as a liability rather than as a boost to business. And when the bank was reauthorized by Congress several months later, it was given a more limited role. It saw a cut of 85 percent in its funding and, because the bank was reauthorized without a quorum of board members in place, it was prevented from issuing loans above $10 million dollars. It wasn’t total victory, but it was progress.
That changed last week when both Republican and Democratic senators voted to restore the bank’s lending authority by approving three members to the board. Even though I expected this to happen eventually, I was still shocked by this vote.
With so much evidence that the Ex-Im Bank—an agency that provides financial support to foreign and domestic companies to boost U.S exports— was nothing more than corporate welfare for large domestic firms and so many foreign state-owned companies, including Chinese ones, and with no impact on net exports, I assumed members of Congress would feel embarrassed to vote to restore the funding. I was wrong.
But the evidence that the Ex-Im Bank serves no productive function except to enrich large corporations continues to be overwhelming. Congress may have given the bank new life, but it still deserves to die.
In 2014, the last year it had a full quorum on its board, and the last year it could give loans larger than $10 million, the bank’s funding was about $21 billion. By 2018, that figure had been reduced to $3.6 billion in real terms. It’s worth looking back at what the bank was doing when it was fully funded.
In the 2014 fiscal year, the Ex-Im Bank was the quintessential corporate welfare agency. On the domestic side, 65 percent of Ex-Im activities benefited 10 giant American companies, including GE and Caterpillar. Boeing alone benefited from 70 percent of the loan-guarantee program and 40 percent of the bank’s overall activities ($48.4 billion), earning Ex-Im the nickname “the Bank of Boeing.”
On the foreign side, Ex-Im’s beneficiaries were similarly well-funded. A vast majority of these companies had ready access to capital, and were as large as the domestic beneficiaries. These clients belonged to the Who’s Who of the airline industry, with names like Emirates Airline, Lion Air, and Ryan Air. Also among the foreign beneficiaries was Pemex, the Mexican state-owned oil and gas company.
In those days, then, the Ex-Im Bank was in the business of big business. But after the lending cap was put in place due to the lack of board members, that changed. In 2018, the share of large firms benefiting from Ex-Im dropped from 75 percent to 34 percent. Boeing’s share of the benefits dropped to zero.
Proponents of Ex-Im have argued that it’s an essential lifeline for the companies it lends money to. Yet all of these companies have been doing just fine without Ex-Im. Indeed, many of them had their best year ever in 2018. That includes Boeing, which saw its sales skyrocket over four years without the bank’s assistance.
As the federal government got out of the export lending business, many big private players filled the gap. It was a small gap to fill in the first place, since in 2014 over 98 percent of exports took place without any Ex-Im backing.
You would think that members of Congress could have concluded that these companies didn’t need the boost. Export financing was flourishing on its own.
You would be wrong, as the Senate just voted to restore the Bank of Boeing to its full potential. This was a vote to put crony capitalism back in business.
It was also a vote to give an unearned bonus to America’s biggest economic rival.
Back in 2014, China was the top beneficiary abroad of Ex-Im activities. About 11 percent of all Ex-Im activities (or $2.3 billion) benefited China. In 2018, that share dropped to 1 percent—or $34.2 million. Of all the Chinese companies that benefited, Air China received the most financial backing from the Ex-Im Bank. This should make you strongly reconsider the Trump administration’s argument that we need Ex-Im to return to its 2014 days in order to fight China.
Indeed, in 2014, the top 10 state-owned recipients of Ex-Im financial aid totaled 30 percent of all Ex-Im activities, or $5.9 billion in deals backed by taxpayers. The U.S. government was backing billions in deals to boost companies owned and operated by foreign rivals. In 2018, these numbers dropped, respectively, to 0.5 percent and $16.6 million. The bipartisan group of lawmakers who restored Ex-Im’s board last week appear to want to go back to backing state-owned enterprises.
Supporters of Ex-Im have sometimes argued that it helps encourage exports. Yet the drop in funding between 2014 and 2018 had little to no impact. In 2018, less than 0.3 percent of exports were backed by Ex-Im, yet overall exports continued to grow from $2.37 trillion in 2014 to $2.55 trillion in 2018.
During the last four years, as Ex-Im’s funding and lending capacity were sharply limited, China lost most of its American subsidies, as did most state-owned businesses. American exports thrived, and American businesses that had been supported by the bank had record years. Yet the Senate just voted to go back to the way things were before. That is shameless, pointless, and wrong.
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