Category Archives: Export-Import Bank

Closing the Ex-Im Bank: Quoted in the Wall Street Journal

James Freeman quotes from my Export-Import Bank paper, due out tomorrow, in his Best of the Web column in The Wall Street Journal:

An Education in Crony Capitalism

The federal government’s Export-Import Bank, which has been proudly subsidizing big business for generations, is likely to be saved by Congress before its authorization expires at the end of the month. But the Competitive Enterprise Institute’s Ryan Young, author of a new paper due out tomorrow, is urging lawmakers to consider the possibilities of slightly smaller government. Mr. Young writes:

The Ex-Im Bank is compromised by internal corruption, constantly pressured by corporations seeking special favors, and creates economic inefficiencies by distorting markets… The Bank recently emerged from a nearly five-year period of reduced activity, which saved taxpayers an astonishing $47.9 billion – an average of $12 billion per year. Shuttering the bank could save Americans billions more.

Freeman’s whole column is here. Since Ex-Im reauthorization is near-certain, the bulk of the paper is on second-best reforms that can limit Ex-Im’s harms until its next reauthorization round. Closing the agency remains the ideal. I’ll post a link when the paper is released.

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A Yardstick for Reform

While recently revisiting my old friend the Export-Import Bank, which is up for reauthorization this September, I was reminded of a quote from Nobel laureate Ronald Coase’s 1975 essay “Economists and Public Policy,” which appears on p. 57 of 1995’s Essays on Economics and Economists:

An economist who, by his efforts, is able to postpone by a week a government program which wastes $100 million a year (which I would call a modest success) has, by his action, earned his salary for the whole of his life.

By this measure, the Ex-Im Bank controversy over the last several years was a success, though there is more work to be done. In 2014 the agency’s authorization lapsed for nearly a year, and after that it was limited to small transactions until May 2019. The total savings run into the tens of billions of dollars.

Boeing Pushes 100 Percent Tariffs on Airbus

Boeing, fresh off a victory in restoring the Export-Import Bank’s full lending authority, is floating the idea of a 100 percent tariff on Airbus aircraft and parts. Airbus is Boeing’s largest competitor. There are four factors in play here. The first three are public relations, the opportunity costs of cronyism, and how best to pursue a level playing field in the global economy. The fourth is the likely retaliation such a move would spark.

From a PR standpoint, Boeing wants to move public attention away from its safety issues with the Boeing 737 MAX aircraft. Most of the press Boeing gets for Ex-Im and Airbus tariffs will be negative, and the company knows this. It would still likely prefer that people be upset about those than about its safety problems, which are an existential threat to more than just airline passengers.

To that point, Boeing arguing for an Airbus tariff right now is almost perfect news cycle timing. The China trade dispute and NAFTA/USMCA are hot stories. Just today, President Trump announced a six-month delay on a possible European auto tariff, which will both keep that story alive for a while and give Boeing time to fold an Airbus tariff into a possible action.

Boeing also has a Baptists-and-bootleggers story at the ready. The World Trade Organization ruled, correctly, that Airbus received unfair government subsidies when it launched its A350 and A380 aircraft. Under WTO rules, the U.S. is entitled to retaliate. But just because it can, doesn’t mean it should. An Airbus tariff is highly unlikely to spur needed reform.

This ties into the opportunity costs of cronyism. Boeing puts significant resources into lobbying for Export-Import Bank support, Airbus tariffs, and other preferential policies. All of those resources are not being used to address the 737 MAX safety issues. This might improve a decimal point somewhere in a quarterly earnings report in the short term. But Boeing’s misplaced priorities could cause long-term harm to both aviation safety and Boeing’s own competitiveness. Competing in Washington is not the same thing as competing in the marketplace. Boeing’s investors should be upset at the company’s behavior.

Companies that engage in heavy rent-seeking are less profitable than more market-oriented companies. Even in Boeing’s case, the most profitable years in company history happened when Ex-Im was unable to offer its usual financing.

Which brings up the third point: It is not enough to have a level playing field. That level must be raised, not lowered. Boeing is right that Airbus’ massive government subsidies are unfair. But the way to address the problem is not to copy Europe’s policy mistakes. Don’t sink down to their level, raise them up to ours—though, admittedly, our own level of cronyism has much room for improvement. But reformers must start somewhere.

If anything, Boeing might have an interest in further tying up Airbus in webs of subsidies and favorable regulations—though I would strongly disagree with this strategy. Government protection tends to cause sclerosis in its beneficiaries, and Boeing should be pleased at the long-term implications of Airbus’ comfort. I am not a fan of this zero-sum thinking, but Boeing might be. Even from their self-interested perspective, an Airbus tariff is a bad idea.

Finally, as I pointed out yesterday, tariffs are nearly always met with retaliation, not cooperation. The European Union almost certainly will not change its tune on Airbus subsidies in response to a U.S. tariff—especially in a global market with many non-U.S. customers. Europe will harden its stance, likely at Boeing’s expense.

Given how tense global trade relations currently are, even if Boeing is just blowing PR smoke, this is a bad time to do it. Better for the company to refocus on making safe, innovative products than spending its resources on a political game with no winners.

See also relevant CEI scholarship on trade, the Ex-Im Bank, and the ethics of rent-seeking.

Export-Import Bank Politics

Politico’s Zachary Warmbrodt has an excellent–and thorough–writeup on the current state of Export-Import Bank politics, covering all sides. He also quotes me at the end:

Conservative opponents of the bank are making clear they’ll resist entreaties by McHenry and others to bring them along for reauthorization.

“He’s not going to succeed with us — that’s for sure,” Competitive Enterprise Institute senior fellow Ryan Young said. “We’re standing by our principles.”

I’m a (classical) liberal, not a conservative, but the statement is still true. The more company, the merrier on that front, regardless of party.

Ex-Im Bank Revival?

Next week the Senate is expected to vote on new board members for the Export-Import Bank, which gives favorable financing terms to foreign governments and businesses when they buy U.S. products. This is a bigger deal than it sounds. Ex-Im’s charter requires a quorum of three members to authorize any transactions larger than $10 million. It has lacked that quorum since 2015 due to expiring board member terms. As a result, Ex-Im has been doing just a fraction of the business it used to do. Its financing projects declined from $21 billion in 2014 to $3.6 billion in 2018.

Sen. Pat Toomey (R-Penn.) and other members have been blocking board member confirmation votes in order to keep Ex-Im to returning to its former “Bank of Boeing” status—when Boeing alone accounted for nearly half of its business in most years. A literal top 10 list of large businesses captured as much as 80 percent of Ex-Im largesse before the big 2014-2015 reauthorization and board quorum battle.

The current board quorum fight is the first act in a larger fight. Ex-Im’s charter expires on September 30. If Congress does not reauthorize it, Ex-Im would close its doors to new projects, wind down its portfolio, and then disappear entirely. This nearly happened in the 2014-2015 reauthorization cycle, when Ex-Im’s authorization lapsed for more than six months. It has lacked board quorum for much of the period since.

CEI has signed on to a coalition letter opposing Ex-Im’s reauthorization. We also hope the Senate declines to give the Ex-Im board a quorum. As the Mercatus Center’s Veronique De Rugy and Justin Leventhal point out in a recent study, Boeing and other major Ex-Im beneficiaries are doing just fine without Ex-Im. They have had no trouble finding private financing, and Boeing even set new profitability records.

Total U.S. exports have increased by $266 billion since 2014. The most recent GDP growth and employment rates are both stellar, despite four years of limited Ex-Im activity. Estimated GDP growth was 3.2 percent in fourth quarter 2018, and Friday’s employment report estimated an employment increase of 263,000 jobs and a 3.6 percent unemployment rate.

Given that the prelapsarian was Ex-Im operating at a loss of $2 billion per decade under conventional accounting standards (the Bank uses unconventional methods to show a $14 billion profit instead), it is time to close Ex-Im. Congress can do that simply by doing nothing. It can also limit Ex-Im’s cronyism by doing nothing to vote on new quorum-restoring board members.

For more on the case for closing Ex-Im, see my paper “Ten Reasons to Abolish the Export-Import Bank.”

Republican Study Committee Releases 2020 Budget Proposal

Congress is supposed to pass an annual spending budget, though it rarely gets around to it. Instead, the government is usually funded through a mashup of individual appropriations bills, omnibus appropriations bills, and continuing resolutions. This makes government spending less transparent and less accountable. It also leaves the federal government vulnerable to shutdowns during political fights, which happened in January of this year.

Fortunately, the Republican Study Committee (RSC) has just issued a proposed budget. It is likely the only budget that will be introduced in Congress this year, though unlikely to pass a Democratic House. As with any issue-spanning document, one can quibble with its contents regardless of political persuasion. Still, the RSC deserves a great deal of credit for at least putting something out there.

Other parts of the GOP should also issue their own proposed budgets; unlike The Highlander, there can be more than one. Across the aisle, a Democratic budget(s) would face similar obstacles in a Republican Senate and White House. They still should release their own budgets to make their policy priorities more concrete.

The whole RSC FY 2020 Budget is here. The document cites CEI sources on a variety of issues:

  • Regulatory Reform. The budget gives an entire chapter to regulatory reform, beginning on page 17, and cites Wayne Crews’s Ten Thousand Commandments annual report—the 2019 edition of which will be released soon.
  • Energy and Environment. The budget’s recommendations for increasing North American energy production draw on the energy and environment chapter in CEI’s Agenda for the 116th Congress.
  • Export-Import Bank. On page 25, the budget would abolish the Export-Import Bank, citing my paper “Ten Reasons to Abolish the Export-Import Bank.” Ex-Im’s charter expires this September 30, and will close if Congress declines to reauthorize it.

Kudos to the RSC for putting out a tangible document that should serve as a starting point for debating federal priorities for the next fiscal year—and for attempting to fix a broken budget process. They also have excellent taste in finding sources for many of their ideas; interested readers can find more in CEI’s Free to Prosper: A Pro-Growth Agenda for the 116th Congress.

Export-Import Bank Drama Continues

The Senate’s main business right now is the annual Defense Appropriations bill. The Export-Import Bank, or Ex-Im for short, might become part of that bill. Ex-Im caused one of the most contentious political fights in recent years. While the fight seemed over when Ex-Im re-opened last December after a five-month shutdown, there is still one more bit of drama to be resolved. That might happen this week.

Ex-Im is currently unable to make transactions larger than $10 million—essentially neutering an agency that does nearly 80 percent of its business in big deals with a literal top-ten of big businesses such as Boeing, General Electric, Caterpillar, and a handful of others. But Sen. Lindsey Graham (R-S.C.), who counts Boeing as a constituent, is trying to restore cronyism as usual at Ex-Im.

A bit of background: Ex-Im offers loans and loan guarantees to foreign buyers of U.S. products. For example, Ex-Im will guarantee loans that a foreign airline takes out—if the airline buys its jets from Boeing instead of Airbus.

For a number of reasons, free-market activists want to permanently close Ex-Im. These range from numerous corruption scandals to the harm Ex-Im does to other U.S. businesses, such as domestic airlines that compete with Ex-Im-subsidized foreign airlines.

Last year Congress refused to renew Ex-Im’s charter, which expires every few years. Ex-Im actually closed for five months, able to do nothing more than maintain its existing portfolio. It reopened when Ex-Im’s supporters succeeded in placing its reauthorization in a must-pass spending bill.

But their victory was a partial one. Ex-Im has a five-member board of directors that must approve any transaction larger than $10 million. As directors’ terms expired during the shutdown, the board was down to two members.

Here’s where the fun begins: Any vote on a $10 million-plus transaction has a quorum requirement of three members—meaning Ex-Im, though open for business, can only perform relatively small transactions until it gets more board members. These require Senate confirmation, and the Senate has shown no interest in considering any nominees.

Enter Sen. Graham, and the current controversy. He is threatening to create a loophole large enough to drive a truck through. If the president decides a $10 million-plus Ex-Im project has national security implications, Sen. Graham proposes giving the president the power to override Ex-Im’s quorum rule, allowing Ex-Im’s current diminished board to approve it.

We all know how creative politicians can be when it comes to tying anything and everything to national security. No doubt Boeing, which typically receives about half of Ex-Im’s business, will work very hard to push as many of its potential loan guarantees as possible through that loophole.

The worst part is that Sen. Graham isn’t pushing this idea as a stand-alone bill that could succeed or fail on its own merits. He is trying to fold it into the must-pass Defense Appropriations bill, which even Ex-Im’s fiercest opponents have to vote for.

What to do about it? Sen. Graham’s proposal is in an amendment he is offering to the defense bill, which is still in the Committee phase. So either the amendment must fail, or another senator must offer a counter-amendment to nullify the Graham amendment. The defense bill is in markup this week, so we could find out soon if Ex-Im’s cronyism will return to its previous vast scale.