Washington’s other fight over free trade: America’s Export-Import Bank
Washington has had quite a fight over free trade recently. This week, Congress finally passed legislation that grants President Obama ‘fast track’ authority to complete a massive trade deal with 12 countries after weeks of debate in which Democrats parted ways with their president. But while the Obama administration is probably breathing a sigh of relief, there’s another deal upsetting lawmakers: a little-known federal agency called the U.S. Export-Import Bank.
The 80-year old government agency that provides financing to boost the sale of U.S. goods abroad is due to expire at the end of this month, and some lawmakers are building a campaign to get rid of it, denouncing the bank as the product of crony capitalism because it uses taxpayer dollars to drum up business for well-connected corporations. The Tea Party is gunning aggressively to shut down the bank, both through marketing campaigns funded by Koch Brothers-backed groups like Freedom Partners, and political surrogates like Sen. Ted Cruz.
That might seem like a fair criticism, except that the benefits of providing seller financing don’t just accrue to big business. The bank finances a mix of loans, guarantees, and insurance products, and has had a fair amount of success. In 2014, it financed $27.5 billion of U.S. exports and generated 164,000 new jobs stateside. In addition, by charging fees to customers, it has generated $7 billion of profits over the past two decades, which benefits American taxpayers.
Nearly half, 40%, of the U.S. exports that the bank helps generate through financing come from small businesses, which constitute a significant part of our economy, employ half of the American workforce, and deserve all the support they can get.
While major corporations have the means to offer seller financing themselves, can absorb the risk of receivables default by foreign customers, and can easily obtain loans from traditional banks for working capital needs, small businesses don’t usually have the resources for any of that. That then requires the support of an agency like the Ex-Im Bank, mostly in the form of loan guarantees or insurance, which enables these small businesses to sell profitably overseas.
This means that shutting down the Ex-Im Bank could have a devastating impact on the small business sector, from telecom equipment manufacturers to textile companies and winemakers, whose international sales would be impeded, according to the Washington Post and other sources. Even smaller domestic lenders who want to provide loans overseas but need insurance against foreign credit risk would be unable to ply their trade if the Ex-Im Bank disappeared. In addition, a shutdown could result in tens of thousands of job losses say business executives, trade groups, and the White House, reported by the LA Times.
Another factor to consider is that almost every developed nation in the world has some version of the Ex-Im Bank, which enhances the ability of their domestic industries to export more goods and compete in the global marketplace. Abolishing the bank could put the U.S. at a significant disadvantage to these nations. Foreign buyers, especially those who need credit, would be more likely to accept seller financing from other nations and buy their products instead, which would hurt our economy.
While libertarians might bristle at the idea of the U.S. government being involved in any aspect of the private sector, they’re also hypocrites since they’re also the biggest proponents of free trade, including the TPP (at least until Sen. Cruz flip flopped). The Ex-Im Bank is a vehicle that only provides critical support to American businesses but also enhances global trade.
For all these reasons, the Ex-Im Bank should not be allowed to shut down at the end of this month and the Tea Party should focus on presenting creative ideas to enhance our economy instead of trying to dismantle a U.S. government agency that does a lot of good.
S. Kumar is a tech and business commentator. He has worked in technology, media, and telecom investment banking.