Export-Import Bank Reauthorization

Update 357 — Ex-Im Bank Reauthorization;
Bizarre Bugbear of Incoherent Opposition

If ever there were a government program a Trump administration could love, it would be the Ex-Im Bank.  It finances American trade and jobs and supports critical industry, including national defense contractors, doing so at a profit to taxpayers. Yet, to run the Bank, Trump nominated a former Congressman with a record of voting to “zero-out,” or defund it.

Yesterday, the House Financial Services Committee held a hearing to discuss the reauthorization of the Bank. The Committee debated the value of the Bank and the terms of its authorization, which expires this September. What will happen on the Hill, and ultimately, at the other end of Pennsylvania Ave.?  See below.

Best,

Dana

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The Export-Import Bank of the United States, Ex-Im, was created by President Roosevelt in 1934 to support U.S. exporters whose overseas clients faced difficulties securing credit through private markets. The Bank provides direct loans to foreign buyers of U.S. goods, as well as loan guarantees and insurance to U.S. exporters.

Other countries have their own export credit agencies (ECAs), which finance exports and underwrite risk. Foreign ECAs are becoming more active and aggressive, securing deals and giving advantages to their domestic companies. Boeing’s main competitor Airbus, receives heavy ECA support.  Ex-Im offers loan guarantees to countries who purchase U.S.-made equipment. The Bank operates at no cost to the taxpayer.

A few Senate Republicans have kept Ex-Im nominees from advancing. As a result, the five-member Bank Board has lacked a quorum since December of 2015. In 2014, the last year the Bank was fully operational, it financed more than $27 billion in export assistance and supported more than 164,000 U.S. jobs. Last year, Ex-Im financed about $6.8 billion in export assistance, supporting 33,000 U.S. jobs.

Reauthorization State of Play

On May 8, the Senate confirmed Kimberly Reed as the new president of Ex-Im and approved two additional Board members, allowing the bank to achieve a quorum for the first time since late 2015. Last Congress, the Senate Banking Committee rejected Trump’s original pick to lead the Bank, former Rep. Scott Garrett, who openly opposed the Bank’s mission. Garrett’s rejection led to the standoff with Sen. Toomey and several other GOP Senators who refused to consider a replacement.

Without a quorum, Ex-Im has been paralyzed – unable to approve loans exceeding $10 million or enact reforms called for in the 2015 reauthorization. With close to $45 billion in deals held up pending Board approval, U.S. exporters have been urging Congress to make Ex-Im fully operational.

Breakdown in Bipartisanship

Ex-Im has historically enjoyed strong bipartisan support, but over the last few years, a minority of conservative Republicans have launched attacks that successfully hindered its operations. Ex-Im opponents argue that the federal government should not interfere in global credit markets — in effect “picking winners and losers.” Due to their intransigence on the issue, the Bank’s authorization lapsed for just under six months on July 1, 2015.

Bank proponents argue that Ex-Im steps in as a lender of last resort, when efforts to receive private financing fail and U.S. exporters would otherwise not be able to sell their products. The Bank also serves as a bulwark against foreign ECAs who promote their own domestic exporters. China now provides $36.3 billion, or one-third, of total global medium/long term loans.

The Bank’s authorization expires on September 30 and a clean reauthorization is by no means a slam dunk. With that said, reauthorization in some form is more likely now that the Board achieved a quorum and the House is under Democratic control.

Ex-Im Reform in Good Faith?

During yesterday’s hearing, both lawmakers and witnesses expressed support for Ex-Im and the need for reauthorization. The issue of foreign ECAs dominating export assistance was front and center, with a particular focus on China’s role in aggressively financing their own exports. Most Democrats and Republicans voiced support for Ex-Im’s mission, and some proposed reforms, including:

  • Decreasing investment ”crowd-out:” Both Democrats and Republicans support additional requirements for foreign applicants to demonstrate inability to obtain credit elsewhere.
  • Changing ‘exposure cap’ levels: The exposure cap is the Bank’s total amount of outstanding and undisbursed assistance, as well as current balances. The amount for the current authorization (FY15-FY19) is $135 billion, down from $140 billion in FY14.
  • Other reforms: Proposed changes to Ex-Im’s loan loss reserves, fraud controls, ethics, risk management, auditing, small business financing targets, and loan terms all enjoy varying levels of bipartisan support.

Responding to critics who claim taxpayer money is at risk, Rep. Denny Heck and Dempsey explained that Ex-Im performs better than many private sector loans in terms of managing risk and maintaining low default rates. The default rate for Ex-Im loans was less than 0.2 percent at the end of 2014, and has increased only slightly to 0.44 percent since. Since 2000, the Bank has netted more than $14.8 billion for the U.S. Treasury.

Making the Case to the Public

The Ex-Im program supports hundreds of thousands of manufacturing jobs at no cost to the taxpayer, but enjoys little popular support in the general public. The Bank has made recent efforts to increase awareness by highlighting the small businesses who use Ex-Im services to export products overseas.

While most of Ex-Im’s dollar value of exports are driven by companies like Boeing, 90 percent of Ex-Im’s clients are small businesses, and many of those are first-time users. Moreover, many nodes within Boeing and GE’s supply chains are small businesses. Some changes to Ex-Im policies, like the small business financing target, may result in different outcomes, although building a hydroelectric dam or a fleet of commercial planes will always necessitate Ex-Im working hand-in-hand with big companies.

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