Requiem for the Export-Import Bank

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Posted in: Government

In 2008, shortly before Senator Barack Obama was elected president, he said that the Export-Import Bank “ha[d] become little more than a fund for corporate welfare.” That was then; this is now. The president currently supports reauthorization of the Export-Import Bank. He was right the first time, when he was Senator. Now, a majority of the Democrats in the House and Senate, coupled with a minority of Republicans may extend, yet again, this symbol of corporate welfare and government waste. The opponents of the Export-Import Bank include a coalition of conservative Republicans and some liberal Democrats. Bank opponents include Republican Senate Banking Committee chairman Richard Shelby (R-Ala.), and Democrat Senator Elizabeth Warren (D-Mass.). All the Republican presidential candidates who have spoken on the issue have opposed the Export-Import Bank.

If Congress reauthorizes this Bank, it will be evidence that the closest thing to immortality that the hand of man has ever created is a government agency spending money as fast as a drunken sailor on shore leave.

The argument for the Ex-Im (what it is popularly called within the Washington beltway) is that it arranges taxpayer-backed funding given to foreign businesses and governments if they agree to buy U.S. products. Taxpayers give money to help major corporations. Last year alone, Ex-Im gave $20 billion in financing exports. Of that amount, 40% went to Boeing. We subsidize foreign governments and foreign corporations to buy Boeing jets, leading the Air Line Pilots Association to complain that (courtesy of the U.S. taxpayer) foreign airline carriers can offer subsidized prices, thereby undercutting American carriers. Since 2007, almost half of all the Ex-Im money “goes to support that plucky little start-up called Boeing. Air India got $5 billion to purchase Boeing aircraft, allowing them to undercut American carriers like Delta with their own tax money,” said Tom McClintock (Rep. Calif.). Since 2009, Ex-Im has given state-owned foreign airlines over $16 billion in subsidized financing.

Supporters claim that Ex-Im money creates American jobs. It does subsidize some jobs but also destroys others. Ex-Im funding redistributes jobs to some industries in the United States and ships other jobs overseas. For example, Ex-Im gave a $694 million direct loan to fund an iron ore project in Australia. Clifford Smith, Executive Vice President of Cliffs Natural Resources (America’s largest producer of iron ore), testified before Congress in June that this subsidy is one reason that domestic iron ore operations have laid off or notified 1,200 American workers of upcoming layoffs. Gina Rinehart, Australia’s billionaire mining heiress, benefitted from the transaction while American workers received lay-off notices. As the nonpartisan Congressional Research Office noted, “By providing financing or insurance for exporters, Ex-Im Bank’s activities draw from the financial resources within the economy that would be available for other uses. Such opportunity costs, while impossible to estimate, potentially could be significant.”

Economists call this opportunity cost. When you spend money in one area, you cannot spend it someplace else. When the government subsidizes some companies, it hurts other companies. Proponents of Ex-Im claim that we need Ex-Im to supports exports. Yet, this multibillion dollar agency affects only two percent of American exports.

Ex-Im also sub-subsidizes many foreign corporations. One example is Sinopec, a very large oil company owned by the Chinese government. Sinopec provided management, engineering, and construction services to another company that the Government of China owns, the China National Offshore Oil Corporation (CNOOC). Ex-Im provided a $200 million guarantee to the Chinese bank financing the deal. In other words, one arm of the Chinese government is selling services to another arm of the Chinese government, all subsidized by us, U.S. taxpayers. CNOOC was not the only beneficiary of the Ex-Im largess. Another benefactor was Royal Dutch Shell, the largest European company, measured by revenue. So, while the Administration is telling us that we must move away from carbon-based fuels, it is simultaneously subsidizing carbon-based fuels abroad. Go figure.

The Ex-Im Bank is now 80 years old, expired on June 30, so there is a major push to resurrect it from death. It is keeping its doors open and has not laid off any workers. Its supporters think that they can attach, to a must-pass highway trust fund bill, a law extending this bit of corporate welfare another five years. With the president behind it and with its big corporate backers, it may come back from the dead. If Congress makes no move to resurrect the Ex-Im Bank, no jobs will be lost because its demise does not affect the many deals it has already approved. However, its passing will stop future losses. Right now, taxpayers are on the hook for $140 billion of possible defaults.

We expect the government to give welfare to the poor, to provide a safety net. It is harder to justify welfare to the rich. The Ex-Im Bank is welfare to the rich. From 2007 to 2014, Boeing received nearly $70 billion in benefits; General Electric was a piker receiving only $8.3 in benefits. Bechtel Corp. was next with a mere $5.2 billion in benefits. In a typical year, e.g., 2013, about 60 percent of Ex-Im money goes to benefit just 10 U.S. companies, which enables foreign companies to undercut U.S. companies. Ex-Im subsidizes exports to Venezuela, Cuba, Russia, and China. These countries are hardly our strongest allies.

Ex-Im claims that it helps small business. Boeing, Bechtel, and GE are not small businesses. Even when Ex-Im does help a few “small businesses,” it uses a definition of “small” that is hardly intuitive. In the Ex-Im lexicon, it defines a “small business” as a company with up to 1,500 employees and $21.5 million in revenue.

Siemens exported three dozen wind turbines to two Peruvian wind farms in 2014, and the U.S. Export-Import Bank provided $65 million in taxpayer financing. On its webpage, Ex-Im proudly announced that this subsidy won Ex-Im’s “Deal of the Year and Renewable Exporter of the Year awards to Siemens Energy Inc. The Ex-Im Bank Chairman said, “This financing helps ensure that the turbines helping to power Peru are made here in the U.S. by American workers, rather than in a competing country.” The fly in the ointment is that Ex-Im financing came after one of the two wind farms was already completed. The other wind farm was under construction, and parties signed contract months before any Ex-Im financing. It should be hard for Ex-Im to take credit for causing a deal when the deal came to pass months before Ex-Im offered to provide any subsidy.

The Export-Import Bank claims that it does not cost taxpayers any money: “In the past fiscal year alone, Ex-Im Bank earned for U.S. taxpayers more than $1 billion above the cost of operations.” Supporters, like the U.S. Chamber of Commerce, also claim that the Export-Import Bank pays for itself and even makes a profit. If that were true, it would be the greatest miracle since five barley loaves and two fishes fed over 500 people.

Let us examine that claim. What we find is that Ex-Im is engaging in creative accounting. After all, if the Export-Import Bank really runs like a business making a profit, it would not have to be a federal agency. It would just be a regular bank lending money to earn profits for its shareholders. Instead, the nonpartisan Congressional Budget Office concluded last year that “the Bank will effectively lose $2 billion over the next decade” if it applies the generally accepted accounting standards that public corporations apply.

And then there is the problem of fraud. In the last six years, the federal government has referred 65 difference matters to prosecution. Thus far, it has issued 31 arrest warrants and 85 indictments, secured 48 criminal judgments, and recovered a quarter of billion dollars in fines, restitution, and forfeiture. With this much smoke, one wonders how much more fire there is.

It is time for this 80-year-old bank to die a natural death.