Update 284 — Ideological Opposition and a Curious Quorum Conundrum Bedevil EXIM
One of the most glaring examples of the feckless approach of the Trump administration to running the federal government is its approach to the Export-Import Bank. A late convert to the value of the Bank, Trump’s mix of active efforts to undermine the Bank and inaction belie his statements in support of it, and the Bank is unable to function as intended.
Ideological opposition and a desire to promote U.S.manufacturing have never been in greater conflict, disserving American economic interest without draining any swamps. Great reading and tooth-gnashing material.
Happy weekends all.
In June, President Trump nominated Kimberly Reed to lead the beleaguered Export-Import Bank of the United States (EXIM). EXIM has been floundering without a quorum since 2015, limiting the agency’s financing authority. The 84 year-old Bank has been constrained from making loans greater than $10 billion. $40 billion of export deals have been held up awaiting financing. Business groups have bemoaned the Bank’s dysfunction, and Reed’s nomination is an indication the Trump administration might at last be taking the problem seriously.
Up until last month, the Administration treated EXIM with the same disdain that it has given most other federal agencies. In October 2017, the president nominated former Rep. Scott Garrett to serve as EXIM president, despite Garrett’s ideological opposition to the bank during his time in the House of Representatives. Garrett failed his Senate Banking nomination hearing, 13-10, after Sens. Mike Rounds (R-SD) and Tim Scott (R-SC) crossed party lines to join Democrats as “Nay” votes.
Ms. Reed, who has Capitol Hill experience and worked in George W. Bush’s Treasury, has signaled her support for EXIM, arguing that the Bank has become an, “important source of funding for small businesses and an avenue for job creation.” She also has the advantage of having already survived a Senate Banking nomination process when she was approved in to serve as EXIM’s first vice president last December (a process which stalled after Garrett’s defeat).
EXIM’s Underappreciated Importance
Business groups have been quick to praise Reed’s nomination. Jay Timmons, President and CEO of the National Association of Manufacturers, called Reed a “sterling” choice to lead the agency, and argued that a functional EXIM Bank is crucial to stopping American companies from losing business to overseas competition. In 2014, the last year EXIM was fully active, the Bank provided more than $20 billion in export credit to U.S. firms, supporting 164,000 U.S. jobs and generating $675 million in profit sent back to taxpayers.
EXIM’s opponents claim the Bank is a form of corporate welfare that picks winners and losers, but this fundamentally misrepresents how it functions. One of EXIM’s primary functions is to help keep good paying manufacturing jobs in the United States, a mission it pursues through a variety of loan, guarantee, and insurance products. Instead of lending to companies, EXIM principally engages with creditworthy foreign buyers to finance American export sales, making a healthy profit in the process.
Business groups have good reason to be concerned about the condition of EXIM. Globally, close to 100 government-supported export credit agencies finance export sales. As a result of the dysfunction at EXIM, many American exporters have been put at a competitive disadvantage in the international marketplace — which has only hurt American industry and job growth.
Value to Small Business
The EXIM Bank is known for working with large American companies, such as Boeing and GE, but it also provides essential support for small businesses. In 2013, almost 90 percent of exporting companies using Bank facilities were small businesses. In addition to those companies directly affected, there is a ripple effect downstream on tens of thousands of small businesses throughout the country.
Small businesses are particularly reliant on EXIM’s export insurance products to help offset the risk of doing business abroad. For a small premium, about 50 cents for every $100 of goods shipped, small businesses can be reimbursed up to 95 percent of their loss for both commercial reasons and political instability.
EXIM insurance allows exporters to offer more flexible terms. Without this insurance, small businesses would face a higher risk when selling their products abroad, diminishing their ability to trade and create jobs. The U.S. Chamber of Commerce found that in Texas — the top exporting state which accounts for almost 20 percent of all US exports — the Bank financed $22 billion in exports for 1,345 Texas businesses from 2007 to 2014, supporting 9,136 jobs in the Greater Dallas area and more than 135,000 jobs around the state over the same period.
Ideological Opposition to EXIM
The Trump Administration’s initial decision to scuttle EXIM put U.S. jobs and manufacturers at risk. As with several presidents before him, President Trump appears to be realizing the merits of the Bank.
The president’s discovery last fall that EXIM “actually makes money” will come as little solace to U.S. manufacturers and workers who, for three years, have been disadvantaged by a president and a GOP Congress that refuses to support middle class jobs and U.S. exports by reauthorizing this vital federal agency. Early signs that the president is having a change of heart should be welcomed, but we’ve heard this tune before from this administration without seeing follow-through (infrastructure comes to mind).
Other Related Articles
- Update 735: Shutdown Threat In Temporary Remission
- Update 728 — Suspended Animation:House Left Behind as the World Turns
- Update 722 — From Strikes to Shutdown: Challenges to the Post-Covid Recovery
- Update 720 — Weekly Economic Roundup
- Update 719 — Discretionary to Discount: Consumer Spending Trends and Trajectory