The Export-Import Bank (Ex-Im) is a federal agency that provides credit, insurance, and loans—all guaranteed by American taxpayers—to foreign and domestic companies in an effort to promote U.S. exports. When a company defaults, American taxpayers foot the bill. When a company earns money from the transaction, it pockets the profits.
Ex-Im claims its activities are a major benefit to America’s economy, but more than 98% of U.S. exports are financed without any involvement from Ex-Im. In reality, the vast majority of Ex-Im’s taxpayer-funded benefits go to only a handful of giant corporations.
Not surprisingly, the corporate lobbyists and special interests in Washington are working furiously to maintain this artificial advantage over their competition. Fortunately, an ever-growing number of lawmakers are recognizing that the time has come to stop subsidizing a few well-connected special interests on the backs of taxpayers.
Here are a few of the common mischaracterizations that lobbyists are spreading about Ex-Im, as well as the facts that the special interest groups aren’t sharing:
1. Myth: Ex-Im operates without any cost to taxpayers.
Fact: Billions of taxpayer dollars are on the line. In May 2014, the nonpartisan Congressional Budget Office debunked the myth that Ex-Im is a money maker. CBO found that, when judged using standard industry accounting, Ex-Im will actually be a net loss to taxpayers of $200 million per year, or $2 billion over ten years.
It is also untrue that Ex-Im helps pay down the nation debt. The U.S. Treasury guarantees Ex-Im loans. When a loan is unpaid, taxpayers lose money and the national debt increases. As noted above, CBO estimates that Ex-Im’s losses will increase the deficit by $2 billion over the next decade. While Ex-Im revenue from interest and fees does go to the general Treasury account, the bank currently owes the Treasury $21 million.
2. Myth: Ex-Im creates tens of thousands of jobs.
Fact: Ex-Im claims it creates jobs without considering the jobs it destroys through unfair competition. The Bank also uses faulty math and ignores economic realities to justify its claims. Its methodology has been widely criticized by government accountants, and Ex-Im proponents have even been caught making up jobs numbers. In fact, Ex-Im’s data on jobs were so questionable that the agency erased the data from its website in 2015.
There are a number of problems with Ex-Im’s claims about jobs. First, Ex-Im fails to take into consideration the impact of giving foreign companies cheap financing to compete with U.S. businesses. As the independent Government Accountability Office has stated, “government export finance assistance largely shift(s) production among sectors within the economy rather than raise(s) the overall level of employment in the economy.” For instance, Ex-Im touted job gains at Boeing when it financed the purchase of wide-body aircraft by Emirates Airline and Air India, but failed to mention the 7,500 U.S. airline industry jobs that were lost as a result. Ex-Im also counted export jobs when U.S. companies exported equipment to an Ex-Im financed mine in Australia, while ignoring the thousands of mining jobs threatened in Minnesota.
Second, Ex-Im’s data on jobs are incredibly limited because Ex-Im fails to do even cursory research about what happens after making a loan. Ex-Im has followed up with economic analyses on less than 1% of all transactions. According to Delta Airlines, “In approximately 17,000 ExIm transactions over the past five years, the Bank has conducted a detailed economic impact analysis on the impact to U.S. jobs only 24 times.”
Third, numbers reported by Ex-Im aren’t a tally of actual jobs, but estimates generated by a stagnant economic multiplier model. Ex-Im’s flawed job estimates are based on the same bogus models that were used to argue the “stimulus” would create jobs. This Keynesian model simply says that government funding creates jobs without actually taking data or real economic evidence into consideration.
3. Claim: Ex-Im subsidies boost the U.S. economy.
Fact: Subsidizing exports doesn’t help our economy, it hurts. Academic research shows that export subsidies slow domestic growth by helping foreign competitors. Studies have found that export subsidies have a net-negative impact on a country’s economy because they put domestic competitors and customers at a disadvantage. According to the World Trade Organization, “The overall impact of the export subsidy on the home country is decidedly negative. Domestic consumers pay a higher price for a product that they are blocked from sourcing at a lower price from the world market. This leads to welfare losses for consumers.”
Even if one ignores the economic realities about the negative impacts of export subsidies, Ex-Im’s benefits go to so few companies that its effect is negligible. In 2013, Ex-Im had a hand in only 1.6% of all U.S. exports. In Ex-Im’s absence, the large companies that benefit from the subsidies would undoubtedly be able to find financing.
4. Myth: Ex-Im primarily supports small businesses.
Fact: In 2013, only 19% of the Bank’s financing benefited small businesses. According to Ex-Im’s own data, the vast majority of Ex-Im subsidies go to profitable big businesses that compete with other U.S. companies – the majority of which do not enjoy Ex-Im financing. In fact, 64% of the Bank’s activities benefited just 10 large companies.
Also, Ex-Im defines small businesses differently than most people would think. In an effort to inflate their claims about how many small firms they help, Ex-Im counts any business with up to 1,500 employees as “small.” That is far higher than other government definitions of small businesses. Obamacare, for instance, defines a small business as 50 employees.
As a result, reports have shown that Ex-Im officials have exaggerated how many small businesses receive benefits by counting companies owned by some of the richest people in America. According to one story, “The U.S. Export-Import Bank has mischaracterized potentially hundreds of large companies and units of multinational conglomerates as small businesses… A Reuters analysis showed companies owned by billionaires like Warren Buffett and Mexico’s Carlos Slim, as well by Japanese and European conglomerates, were listed as small businesses and Ex-Im acknowledged errors in its data in response to those findings.”
5. Myth: If Ex-Im expires it will result in immediate job losses.
Fact: If Ex-Im isn’t reauthorized it will have no impact on any current financing arrangements or contracts. As the nonpartisan Congressional Research Service has noted, allowing the authorization to sunset would trigger an orderly wind down of Ex-Im that would allow the bank to continue “administering its assets and collecting any obligations it holds.” Ex-Im could service existing loans and would simply be barred from issuing any new taxpayer-backed guarantees. Thus, no current financing would change.
6. Myth: Ex-Im counteracts unfair trade practices by matching the financing that other governments provide to their exporters.
Fact: Ex-Im tilts the playing field against 98% of all U.S. exports because they aren’t subsidized. Only 30% of the Bank’s activities are categorized as counteracting foreign subsidies—and hence are justified by Ex-Im as “leveling the field.” Ex-Im picks winners and losers and creates unfair competition for the firms, workers and exporters who are competing with Ex-Im-backed companies here and abroad. That means loss of jobs and opportunities for the losers. As such, Ex-Im creates a distinctly un-level playing field.
7. Myth: Without Ex-Im, U.S. exports would decline.
Fact: Less than 1% of exporting U.S. businesses have used Ex-Im. Ex-Im claims that between 2007 and today, 8,973 businesses have used Ex-Im financing to facilitate export sales, including 5,813 small businesses. In 2012 alone, some 305,000 U.S. companies exported goods (and/or services) to foreign countries, including 297,995 small and medium-sized businesses. Since 2007, more than 2.4 million U.S. businesses have been involved in exporting. Only 8,973 of those used Ex-Im.
8. Myth: Ex-Im only provides lending when private banks will not.
Fact: While Ex-Im says it only provides loans if there is a lack of private financing, some funding decisions have been made based on other criteria—like political connections and even cash kickbacks. Recent evidence has shown that four Ex-Im officials were removed amid allegations of bribery in 2014. According to the Wall Street Journal, “One employee, Johnny Gutierrez, an official in the short-term trade finance division, allegedly accepted cash payments in exchange for trying to help a Florida company obtain U.S. government financing to export construction equipment to Latin America.”
Additionally, Ex-Im has used taxpayer money to back risky projects that private banks wouldn’t touch. For instance, a recent story reported that Ex-Im gave $400 million to an Australian company that has blown through its money, defaulted on loans, and lost “nearly a third of its total market capitalization.” The fact that credit and financing are not available for some investments is not a market failure, but rather a protection. Companies are free to export their goods to unstable markets, but should not expect the taxpayer to shoulder the risk.
9. Myth: Ex-Im is the only institution willing to support such large financing amounts in emerging markets.
Fact: Ex-Im is not a lender of last resort. Private financing is typically available for even Ex-Im’s largest transactions. Private financing is a widely available option in most of the Bank’s transactions. New disclosure requirements have forced Ex-Im to publicly release its justifications for financing. These disclosures revealed that the majority of Ex-Im’s largest deals could have been financed by the private sector at a marginally higher cost to the companies, but without taxpayer exposure.
After reviewing the disclosures, Delta airlines testified to Congress in 2014, “the 75 commercial aircraft guarantees the Bank has authorized over the past two full financial years included only 17 (less than 25%) as a result of limitations in private-sector financing. Healthy foreign airlines such as Emirates, Etihad, Ryanair, and Air China, as well as lessors such as Russia’s VEB Leasing, are going to Ex-Im because they get better deals than the private market would provide – not because they struck out everywhere else.”
10: Myth: Ex-Im loan guarantees and subsidies are not corporate welfare.
Fact: Ex-Im provides special treatment and taxpayer-subsidized benefits to a chosen handful of large companies and their suppliers, leaving their competitors at a disadvantage. These beneficiaries then spend time and money lobbying elected officials to continue their special benefits. That is the very definition of corporate welfare.