Without congressional action, the Export-Import Bank’s charter will expire on October 1. Many, though certainly not all, conservatives think that’s a good thing.
For most of its history, Ex-Im did not face serious challenges when its charter came up for renewal. In recent months, however, a number of prominent Republicans, including Rep. Paul Ryan, Rep. Jeb Hensarling, and Rep. Kevin McCarthy, have come out against re-authorizing the bank, calling it a type of crony capitalism.
McCarthy, a former Ex-Im supporter, will soon take over as House majority leader. Ryan and Hensarling chair key committees dealing with fiscal policy.
The American Enterprise Institute hosted a debate on Thursday night between two of the leading conservative on either side of the Export-Import Bank issue.
Tim Carney, a journalist for the Washington Examiner and visiting fellow at AEI, made the case for allowing the bank’s charter to expire. Advocating the continuation of Ex-Im was Tony Fratto, a former Bush administration official who also previously worked as a spokesman for the Department of the Treasury
Fratto argued that the existence of foreign export-credit agencies would put American companies at a disadvantage in the global marketplace if Ex-Im were to disappear. There is strong demand for expensive, capital-intensive goods in emerging markets, he explained, and customers in those markets demand official export-credit assistance. Therefore, “the alternative to providing export-credit assistance is to say we are closing those markets to U.S. exports.”
Carney responded that he does not believe that the U.S. “ought to emulate the way that China approaches industrial policy.” Comparing that approach to the whine of “Charlie did it first” that he hears from his children, Carney said that “just because China is rigging the game does not mean it makes sense for us to rig the game too.” In support of this position, he cited a study by the Royal Economics Society claiming that China is reducing its annual economic growth by three percent because of the export subsidies it provides. (RELATED: Is the Export-Import Bank Crony Capitalism)
Conservatives also disagree about whether Ex-Im financing constitutes a subsidy, particularly since it generates profits for the Treasury.
According to Carney, those profits are illusory, and can only be derived from “bad accounting.” Fannie Mae and Freddie Mac, he reminded the audience, “didn’t cost the taxpayers money until they did.” The bank’s accounting procedures, he said, “don’t take into account what the CBO says you have to take into account, which is market risk.” If those risks are factored in, “Export-Import Bank is providing a subsidy, especially on the loan guarantees, of up to $2 billion per decade.”
Fratto countered, “Ex-Im financing is actually at market rates,” and so does not constitute a taxpayer-funded discount for exporters. He added that Ex-Im charges the same rates as other OECD export-credit agencies, and that these rates are compliant with WTO rules. Moreover, the accounting used at Ex-Im “is the same accounting the U.S. government uses for the federal budget,” which specifically pertains to levels of taxing and spending.
“When government gets involved in this kind of thing, it creates an opportunity for cronyism and corruption,” Carney maintained. In the final analysis, he claimed, “subsidizing export financing merely shifts production among sectors in the economy,” giving Ex-Im officials tremendous power to shape economic outcomes. (RELATED: Ex-Im Criticized for Lending to State-Controlled Companies)
In reality, Fratto said, “Ex-Im financing is available to anyone who exports,” and is awarded on a first-come-first-served basis, not at the discretion of government bureaucrats. Additionally, the reason so many companies in developing countries demand official export-credit assistance is their belief that “Ex-Im is actually a force against corruption,” because it is subject to oversight by the U.S. government.
Both agreed the bank would be re-authorized. “It is really hard to beat Ex-Im,” Carney said, “because of what economists call concentrated benefits and diffuse costs.”
Fratto predicted that, “in the near term, it may have to be part of a continuing resolution” with a relatively short-term authorization period. (RELATED: Democrats Rally Support for Export-Import Bank)
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