The Ex-Im Bank is a crucial tool to ensure small businesses can compete to sell their goods overseas, supporting high-paying jobs. Reauthorization should be a no-brainer.
Of all the problems confronting the U.S. economy today, exporting too much isn’t one of them. In fact, one problem America faces is that it exports too little.
Compared to other developed economies, America exports much less relative to its Gross Domestic Product (GDP). For example, while the U.S. only exports 13.5 percent of its output, while China exports 26.4 percent, the United Kingdom exports 29.8 percent, Canada exports 30.1 percent, and Germany exports 45.6 percent.
We know that trade helps to increase productivity, and workers at exporting firms tend to enjoy higher wages. This is why every country in the world, from Chile to China and Finland to Fiji, is taking steps to boost exports.
Yet in the U.S., some people are actually advocating for policies that will reduce exports. Anti-export steps can take many forms, but the most worrisome relates to the U.S. Export-Import Bank, America’s official export credit agency.
It’s a small agency, but it plays an important role. The Ex-Im Bank has helped more than 8,000 companies from all industries and of all sizes ship products abroad, and over about 20 years has returned about $7 billion to the U.S. Treasury Department. That money lowers the deficit and in turn helps taxpayers.
The Ex-Im Bank is up for reauthorization June 30. If Congress fails to reauthorize it by then, companies will have to cut back and people will lose their jobs at those firms. The owners of small- and mid-sized exporters tell me that without Ex-Im, they’ll have to at least limit their export activity — or stop altogether.
The Ex-Im Bank works by allowing some overseas buyers to get the financing they need to buy American goods — financing that isn’t available in the private sector. Take away the Ex-Im Bank, and those foreign buyers would have no other option but to buy the next-best product from foreign firms, costing U.S. businesses sales and the productive, high-paying jobs they support. It’s really that simple.
Meanwhile, our global competitors are seizing opportunities to drive their domestic growth through international sales. Today there are at least 60 foreign counterparts to the Ex-Im Bank trying to offer financing to take business away from U.S. companies. In other words, global competition is fierce.
Every day, American companies compete and will continue to win on quality, delivery, service and innovation. They are truly “world class” across an array of industries. But they stand to lose if Congress takes away this financing option from some of their customers.
The Ex-Im Bank is not widely used by all exporters, and — contrary to what many critics say — that’s a good thing. We want the private sector to handle as much of the trade financing for buyers of U.S. exporters as possible. In 98 percent of U.S. export sales, the private sector does just that.
But the private sector can’t do the portion of financing handled by Ex-Im Bank. We know this not because of some ideological theorizing, but because private-sector banking firms continually tell me so.
Banks can’t do this financing for a number of reasons, but most overlooked is the fact that certain international buyers require assistance from official — not private — export credit agencies. If U.S. firms lack the official financing for those customers, that business will go directly to foreign firms who have ample backing from their own export credit agencies.
This is especially true for the export of nuclear energy projects. If a foreign company wants to purchase the infrastructure needed to develop nuclear energy, export credit support is often a bidding requirement for deals, given that much of the demand for nuclear energy is in developing countries.
This needs to be clearly understood: In many cases, firms are not even permitted to bid on a major project unless their application includes an official export credit agency.
No Ex-Im Bank financing means fewer sales for our nuclear energy industry and the thousands of suppliers who provide inputs into companies like Westinghouse. It also means more sales for Russia’s Rosatom and other nuclear competitors.
Official export credit assistance by foreign governments, it should be noted, dwarfs the amounts available to U.S. customers. And they’re not shrinking their resources — they’re increasing them.
In other cases, thousands of small and mid-sized U.S. companies, especially firms just learning how to export, lack both resources and financing for getting their international sales off the ground. The Ex-Im Bank helps these inexperienced, smaller exporters from all over the country get their products to customers all over the world. Again, this is good: where firms can operate without the assistance of Ex-Im Bank, they should.
Businesses in every sector of the U.S. economy understand the value of the Ex-Im Bank, and it’s why businesses from nearly every sector of the economy support reauthorization of the bank.
If the Ex-Im Bank was a burden on taxpayers, one could argue that the benefits of exporting might outweigh the costs. Fortunately, the bank doesn’t cost taxpayers a cent. In fact, the Ex-Im Bank consistently delivers a profit to taxpayers. In 2014 alone, that profit amounted to more than $650 million.
And the best part? The program is mostly financed by the fees and interest payments of foreign customers. In other words, foreign companies are paying U.S. taxpayers to use export financing.
Congress needs to reauthorize the Ex-Im Bank and keep America exporting.
Watch Wednesday’s Ex-Im Bank event, Keeping Our Edge: Jobs, Exports and Global Competitiveness, here.
(Top image: Courtesy of Thinkstock)
Tony Fratto, a former U.S. Treasury and White House official, is a Partner at Hamilton Place Strategies.