Five Reasons Reauthorizing EXIM Bank Is A Smart Move

The House of Representatives is likely to vote on reauthorization of the U.S. Export-Import Bank sometime in the next several days. EXIM, as it is widely known, is not a big agency. It only has 370 employees. But it is the official export credit agency of the federal government, chartered to finance and facilitate the overseas sale of U.S.-made products.

Every major trading nation has at least one such agency—there are over a hundred of them—because it isn’t feasible to do some transactions without government-backed financing. Unlike export credit agencies in places like China and India, EXIM’s charter must be renewed periodically. Otherwise, it ceases to function. The legislation pending in the House, which closely resembles companion legislation in the Senate, would reauthorize the bank for ten years and raise its lending limit.

President Trump supports EXIM, as did President Obama and all of their predecessors since the bank was created in 1934. Wilbur Ross, the Secretary of Commerce, has described it as part of a “toolbox” that the administration relies on to rebalance trade policy in favor of U.S. workers. So reauthorization is vital if Washington is to make progress in reducing the nation’s huge merchandise trade deficit ($887 billion last year).

EXIM’s charter will expire Nov. 21 with the end of the current continuing resolution on government funding. Though both parties support reauthorization, passage of the 10-year legislation could be complicated by the greater need to pass a new continuing resolution to avoid a government shutdown.

Here are five reasons why reauthorization is a smart move.

EXIM costs taxpayers nothing. The bank is self-sustaining. All of its loans and other financial services must be paid for by users, and the interest or fees charged more than cover the bank’s costs of operation. In fact, in a typical year EXIM turns over hundreds of millions of dollars in collected fees to the Treasury that the government can use for other purposes. The default rate on EXIM loans is below 1% and the bank maintains reserves for covering any shortfalls, so there is minimal risk.

EXIM fights unfair foreign competition. Some countries use their export credit agencies to pursue predatory trading practices. China in particular has extended credit to its exporters on a scale vastly exceeding that of EXIM, and on concessionary terms, in order to take market share from other trading nations. The main goal of EXIM’s programs is to level the playing field for U.S. exporters so that they do not compete at a disadvantage against companies in countries like China and South Korea. Newt Gingrich recently wrote that without EXIM, “there is no practical, clear way to compete against the ever-expanding Chinese economic-military machine.”

EXIM supports over a million U.S. jobs. Without the assistance provided by EXIM, many U.S. companies could not export successfully. In some cases, foreign customers will not enter into deals unless a government agency has guaranteed the financing. EXIM estimates that over the last decade it has supported 1.7 million U.S. jobs in all 50 states—jobs that probably would not exist in the absence of a U.S. export credit agency. The bank’s role in sustaining U.S. employment typically grows during slowdowns in the global economy.

EXIM supports small business. In fiscal 2019, over 90% of EXIM’s transactions were in support of small businesses. These are the exporters who are most vulnerable to the predatory trading practices of other nations. Owners of these businesses have repeatedly stated that their companies cannot operate successfully in foreign markets without EXIM support. Even when the immediate beneficiary of EXIM services is a big company like Boeing or Caterpillar, much of the resulting revenue is ultimately passed through to small suppliers and subcontractors.

EXIM doesn’t compete with the private sector. The bank’s charter prohibits it from competing with private-sector companies for customers. Its role is thus confined to supporting transactions where the private sector is unwilling to extend financing unless EXIM becomes involved. The bank frequently works through commercial lenders and other private-sector enterprises to make deals happen. It thus assists both exporters and domestic lenders in facilitating foreign trade.

The manifest benefits provided by the bank explain why it has enjoyed broad bipartisan support throughout its history. President Trump has remarked upon the fact that in addition to facilitating overseas sales of U.S. goods and services, EXIM actually manages to make money for the government. There aren’t many federal agencies that can claim that. Trump knows a bargain when he sees one, and that bargain explains why a small agency that many voters have never heard of enjoys support on both sides of the political aisle.

Several companies benefiting from EXIM programs contribute to my think tank.

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I focus on the strategic, economic and business implications of defense spending as the Chief Operating Officer of the non-profit Lexington Institute and Chief Executive...