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Could Ex-Im Bank Debate Lead to Another Government Shutdown?

WASHINGTON – The Export-Import Bank is back on the congressional griddle, with some observers predicting the upcoming debate over the corporation’s fate could ultimately lead to another governmental shutdown.

House Majority Whip Kevin McCarthy (R-Calif.), who will soon replace Rep. Eric Cantor (R-Va.) in the post after the latter lost a re-election bid, revived the argument over the bank’s fate with a recent appearance on Fox News Sunday when he announced his opposition to reauthorization. Cantor supported the bank.

“It’s something that the private sector can be able to do,” McCarthy said.

House Speaker John Boehner (R-Ohio), who has supported the Ex-Im Bank in the past, has expressed less enthusiasm for the federally owned corporation this time, refusing to tell reporters which side he’s falling on.

“My job is to work with our members to get to a place where the members are comfortable,” Boehner said. “Some people believe that we shouldn’t have it at all, others believe that we should reauthorize it with significant reforms and we’re going to work our way through this.”

Senate Democratic Leader Harry Reid, of Nevada, intends to seek a vote on the bank’s future before Sept. 30 – the day the agency’s authorization is slated to expire. Senate Republican Leader Mitch McConnell, of Kentucky, who has opposed the bank in the past, told reporters he is undecided this go-round but supports Reid’s intention to debate the issue.

The Export-Import Bank, a New Deal legacy created in 1934, finances and insures foreign purchases of goods produced in the U.S. for customers either unable or unwilling to accept credit risk. The bank seeks to create and sustain domestic jobs by financing the sales of U.S. exports to international buyers.

Under the charter granted by Congress to operate as a government corporation, Ex-Im is prohibited from competing with private sector lenders but is authorized to provide financing for transactions that otherwise would likely not occur because commercial lenders are unwilling to assume the financial risk associated with the deal.

The bank’s charter expires at the end of the federal fiscal year. The Obama administration is requesting a five-year reauthorization with an exposure cap of $160 billion – a $20 billion increase above current levels.

“There is a strong drive to increase exports from many countries around the globe,” said Fred Hochberg, the bank’s president and chairman. “We need to send the same signal to competitor nations that we stand behind American workers and exporters and ensure that products stamped ‘made in the U.S.A.’ are able to compete on a level playing field. In order for U.S. businesses to be able to compete based on the price and quality of their exports, Ex-Im needs to be there to level the playing field when it comes to meeting foreign export credit agency competition.”

But a number of conservative Republicans, including Rep. Jeb Hensarling (R-Texas), chairman of the House Financial Services Committee, consider the bank a form of corporate welfare and are looking to kill it.

Hensarling maintains that records prove “overwhelmingly and indisputably” that the Export-Import Bank’s benefits are directed at “some of the largest, richest, most politically-connected corporations in the world – like Boeing, General Electric, Bechtel and Caterpillar. In fact, in 2013 over half of Ex-Im’s financing went to a handful of Fortune 500 companies.”

Large Wall Street banks like JP Morgan and Citigroup benefit from the arrangement as well, Hensarling said, citing a recent press report that quotes one banker as saying funds from Ex-Im constitute “free money.”

“So if you’re a politically connected bank or company that benefits from Ex-Im, no doubt you would like it to continue,” Hensarling said. “After all, it’s a sweetheart deal for you. Taxpayers shoulder the risk and you get the reward. But if you work at a small business or other American company competing in the global marketplace, it’s unfair. Ex-Im effectively taxes you while subsidizing your foreign competitors.”

Hensarling acknowledged that there exists a diversity of opinion within the Republican caucus over the existence of the Export-Import Bank.

“But we are united in believing we cannot reauthorize the status quo,” he said. “And we are also united in believing that the smarter and fairer way to promote American exports is by fundamental tax reform, strong trade agreements, a regulatory freeze with the exception of health and safety and greater American energy independence with projects like the Keystone pipeline.”

Dr. Veronique de Rugy, senior research fellow at George Mason University’s Mercatus Center, found that the Ex-Im Bank “simply has no justification for existence and no claim to reauthorization.”

“The Bank cannot claim to play a ‘critical role in promoting US exports’ as the total export value of its annual portfolio only accounts for roughly 2 percent of the total value of US exports each year,” de Rugy said. “The bank cannot claim to be filling the purported ‘financing gap,’ either, as most of its portfolio assists large, connected firms that would have no trouble procuring alternative financing. Finally, economists have long known that export credit agencies have, at best, a tiny effect on national exports compared to potent broader economic trends.”

De Rugy further rejected claims that the bank creates a substantial number of jobs, claiming the figures are based on faulty methodology and that “for every job the bank can claim to have ‘created,’ there are numerous employees of unsubsidized competing firms who can claim to have been hurt by this action.”

But Hochberg asserted that small businesses derive many Ex-Im benefits. In 2013 the bank financed a record 3,413 small businesses – almost 90 percent of the operation’s transactions, amounting to $5.2 billion in direct small business financing. The bank financed more small businesses over the past five years than in the prior eight.

“The bank also supports tens of thousands of small businesses whose goods are incorporated into larger export products such as transportation, heavy machinery, oil and gas facilities and other manufactured goods,” Hochberg said. “Industry frequently refers to these small business exporters as ‘hidden exporter.’”

Steven Wilburn, chief executive officer of FirmGreen Inc., an energy company that has benefitted from the Ex-Im, said the only firms harmed by the bank “are my foreign competitors.”

Financing from the Export-Import Bank is “tied directly to U.S. domestic content, meaning that the Ex-Im can only finance the portion of a product that is manufactured in the U.S.,” Wilburn said. “This ensures that Ex-Im financing is directly linked to the preservation and creation of U.S. jobs.”

If the bank is dissolved, Wilburn said, “It would only harm U.S. companies, jobs and our recovering economy. I can tell you that there’s nothing more my foreign competitors would love to see.”

Ex-Im carries some GOP congressional support. Sen. Mark Kirk (R-Ill.) joined Sen. Joe Manchin (D-W.Va.) in sending a letter to the Senate Banking, Housing and Urban Affairs Committee urging immediate action, asserting that the bank “provides crucial export financing for small businesses through its loan, guarantee, and insurance programs in cases where the private sector is unable or unwilling to do so.”

Reauthorization carries the support of the majority in the Senate, Kirk and Manchin noted, adding that failing to continue the bank’s operations will result in the loss of more than a million jobs and billions of dollars in exports.

“At a time when our economy’s recovery remains fragile, it would be foolish to weaken this shining example of a successful public-private partnership,” the lawmakers said.