What is the Export-Import bank, and why is Washington fighting over it?
Congress failed this week to reauthorize the charter of the largely unknown Export-Import bank, a government agency that subsidizes the foreign buyers of US made products. Opponents say it distorts the market and shouldn't be renewed, but President Obama says that America will lose jobs without it.
On Tuesday, Congress failed to reauthorize the charter of the 80-year-old Export-Import bank, a government agency that subsidizes the foreign buyers of US made products.
While that detail alone may not be an attention grabber, the fact that Republican lawmakers have launched a full-scale attack against the bank is indicative of a larger argument in Washington, the outcome of which could determine how involved the government gets in the economy, and ultimately, how the US labor market fares in the future. In the end, it’s all about jobs.
The "Ex-Im" as insiders call it, was ordered by Franklin Delano Roosevelt in 1934 as away to close financing gaps in large sales of US goods to buyers overseas when private lenders are unable or unwilling to take on the financial risk. In 2013, for example, the bank authorized around $27 billion to subsidize foreign buyers of US products, guarantee their private-sector loans, and insure them against risk, according to its annual report.
Despite being unknown to most Americans outside of Capitol Hill, the bank has drawn the ire of tea-party aligned conservatives and many a GOP presidential hopeful. These staunch opponents of the Ex-Im say that the bank is a symbol of “crony capitalism” and the ties between big government and big business.
"The Ex-Im Bank claims to correct market failure, but it introduces distortions into the economy and inserts politics into what should be purely commercial decisions," wrote trade policy analyst Sallie James for the libertarian think tank the Cato Institute.
Moreover, some experts have pointed out that opposition to the bank provides an opportunity for Republicans to demonstrate that they are defending the free market, not just the interests of big business.
"Defense of free markets is often caricatured by the left as being, 'This is just a defense of big business of corporate America.' ... The best way to show that the defense of free markets is about free and open competition is for the leaders of free enterprise to stand up and fight against corporate welfare,” said Timothy Carney of the center-right think tank the American Enterprise Institute during a talk in 2014.
But supporters of the bank say that the Ex-Im is imperative for maintaining American jobs, which are bolstered by the ability of foreign entities to purchase American goods. Foreign companies competing with US firms, they say, are supported by their own national versions of the Ex-Im, meaning that the bank’s demise could cause foreign buyers to turn their backs on US businesses, leading to fewer sales and fewer employment opportunities.
"Particularly for expensive, long-lived capital goods such as aircraft, nuclear reactors, locomotives and earth-moving equipment, U.S. companies are bidding in competition with foreign companies that are backed by very generously funded export credit agencies of their own," John Murphy, vice president for international policy at the US Chamber of Commerce, said in an interview with the Washington Examiner.
"Bids from all tenders must come with official export-import credit agency backing, which Ex-Im uniquely provides in the United States. So the bottom line in those cases is that without Ex-Im, U.S. companies aren't even able to bid."
Meanwhile, the acclaimed yet polarizing economist Paul Krugman didn’t miss his opportunity to weigh in on the issue, arguing that while the the Ex-Im’s impact on the US labor market may be negligible under normal circumstances due to rising interest rates, this is not the case now.
“Right now… we’re at the zero lower bound, which means that the Fed won’t raise rates,” Mr. Krugman wrote for the New York Times.
“Under current conditions mercantilism works – so this is exactly the moment when ending an export-support program really would cost jobs.”
And President Obama, who during his 2008 campaign called the bank “little more than a fund for corporate welfare”, is now calling for the bank to be reauthorized.
"We will lose business and we will lose jobs if we don't pass it," Mr. Obama said Wednesday, the Wall Street Journal reported.
But regardless of this alleged importance for the US labor market, lawmakers allowed its charter to expire this week. As Stanford professor Russell Berman pointed out in the Atlantic, “the conservative victory came as a result of Congress doing what it does best: Nothing.”
“Despite an aggressive push from Democrats, the White House, and powerful industry groups like the U.S. Chamber of Commerce, neither the House nor Senate held binding votes on its reauthorization as the deadline approached,” Mr. Berman continued.
In spite of this inaction, many believed that the Ex-Im would be retroactively reauthorized. But now, seven conservative Republican senators are demanding that the bank begin to immediately disclose its plans for liquidation.
On Wednesday Republican senators, including presidential candidates Marco Rubio, Ted Cruz, and Rand Paul, wrote a letter to Ex-Im Chairman Fred Hochberg claiming that, under law, the Ex-Im should now only exist to liquidate itself.
"Given the unique nature of your agency’s termination, we write to request clarity on your plan for an orderly liquidation," they wrote, Business Insider reported.
Still, House Speaker John Boehner said he plans to present legislation that would bring the Ex-Im back. The debate will continue when Senators return after the 4th of July recess.
In the 81 years since its founding, the Export-Import Bank has been reauthorized 16 times without any major difficulties.