Reauthorizing the Ex-Im Bank

The Ex-Im Bank fills in gaps in trade financing by providing loans, loan guarantees and insurance to recipients who are good credit risks. Although most American exports are privately financed, private institutions are sometimes unable or unwilling to take on certain credit or country risks in export trade, such as the risks involved in exporting to countries with weaker political and economic systems. In these cases, the Ex-Im Bank closes the void by providing export financing. It also helps to counter predatory efforts by countries like China to use export financing to grab American business in foreign markets. 

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Opponents of the Bank compare it to Fannie Mae and Freddie Mac and argue that its guarantees put taxpayers at risk. But that’s a mistaken analogy. The Bank’s loans are backed by the solid collateral of real goods–including aircraft and capital equipment–for which there are well-established international prices. And the Bank’s default rate is 1.5 percent, well below the default rate of private banks.

With our massive trade and budget deficits and still-recovering economy, the Ex-Im Bank’s mission is now more vital than ever. The Bank supports over $40 billion in American exports and creates or sustains some 290,000 jobs at over 3,600 companies.

But in the current, toxic political environment, success is no antidote when ideology is divorced from reality. Purists claim that the Bank should be shuttered because it distorts markets and trade flows and allows the government to “pick winners and losers” in trade. While this might make for an interesting debate in college dorms, it utterly fails the real-world test of a global economy in which American producers and workers must fight tooth-and-nail to win sales and jobs. 

Virtually all of America’s major global competitors are far more active than the United States in using export financing to back their sales in foreign markets. Brazil, Canada, France, Germany, Italy, India and others each provide at least four times more export financing than the United States in relation to GDP. And China? 17 times more! In 2010, as Ex-Im provided $24 billion in loans and guarantees, export credit agencies in Canada and Japan provided credit of $80 billion and almost $140 billion, respectively. In this pitched battle for exports and jobs, we can’t unilaterally disarm.

Let’s be clear. Without Ex-Im financing, foreign airlines would increasingly use European export credit to buy aircraft from Airbus rather than Boeing, and the rapidly growing foreign market for new infrastructure projects would be supported by foreign-government-financed heavy equipment, rather than American-made earthmovers from Caterpillar. Without the decisive role that Ex-Im financing played in “leveling the playing field” against an aggressive financing offer by China, GE likely would have lost a contract to sell 150 locomotives to Pakistan, putting at risk some American 700 jobs at its plant in Pennsylvania.

And closing down Ex-Im would not just harm large American exporters and their workers. Small businesses account for more than 80 percent of Ex-Im’s transactions. Without Ex-Im loan guarantees, Maryland-based Chindex Medical would be unable to complete against foreign-supported suppliers to sell medical equipment in China, and Florida-based Bolivar Trading and its 35 employees would not be in business selling gas station equipment in South America and Africa. Additionally, shutting off Ex-Im credit to large exporters would dry up business and jobs for the many other small and medium U.S. companies that play a critical role in the supply chain ecosystems of big firms.

Of the world’s 12 largest economies, the United States ranks last in the share of our GDP supplied by exports. This means that America still has significant room to grow and create good jobs by expanding trade. A long-term reauthorization and significant increase in lending authority for Ex-Im is an indispensable tool in driving growth and supporting jobs through exports.

If the Ex-Im Bank were forced to stop providing export credit, there would still be plenty of “winners and losers” in the global economy.

The “winners” would be foreign exporters who would still enjoy strong support from their own export credit agencies. And they would include free market ideologues, many of whom seem to forget that they recently campaigned on the importance of growing exports and creating good jobs.

And the “losers?” They would be America’s producers, exporters, and workers.

Rep. Larsen, a Democrat, represents Washington’s 2nd Congressional District. Gerwin is senior fellow for trade and gobal economic policy at Third Way and Kessler is senior vice president for policy at Third Way.