With global competitors expanding export credit to support their own companies, why would the Unites States unilaterally disarm the Ex-Im Bank?
With Congress in the midst of considering legislation to reauthorize the U.S. Export-Import (Ex-Im) Bank — its current authorization expires and thus must be extended by June 30, 2015 — comes fresh evidence reiterating the vital need for the Bank in providing export credit finance support for America’s exporters.
On Friday, June 12, the Bank released its annual Report to the U.S. Congress on Global Export Credit and Competition, which once again demonstrates the emphasis America’s leading competitors place on providing export credit support for their traded-sector enterprises and underlines the risks if Congress does not reauthorize the Bank with alacrity.
As the chart below illustrates, as a share of GDP in particular, a number of countries significantly out-invested the United States in new medium- and long-term export credit assistance in 2014. In fact, as a share of its economy, China invested eight times as much in export credit assistance than the United States did in 2014, while Germany invested six times as much, and France and Italy almost five times as much. In fact, of 10 nations assessed for their 2014 export credit volumes, the United States ranked ninth in export credit intensity.
Moreover, as the second chart below shows, in 2014, China invested $58 billion in new medium- and long-term export credit, almost five times more than the $12.1 billion the United States invested. And the gap is even more yawning in absolute terms over the past four years, as from 2011 to 2014, China invested twice as much in export credit assistance than the United States did: $162 billion to the United States’ $79 billion. And while Germany invested roughly the same amount over this period ($75 billion), as a share of its economy Germany invested 4.5 times as much.
What’s more, most countries provide export credit assistance under international rules established through the Organization for Economic Cooperation and Development (OECD) to ensure that companies compete on free-market factors such as price and quality rather than on aggressive government financing. But the 2014 Report to the U.S. Congress on Export Credit Competition shows that unregulated export credit competition continues to significantly expand. In fact, whereas 100 percent of trade-related official support fell under the aegis of the OECD’s 1999 Arrangement governing fair use of export credit, today that share has been reduced to only 34 percent. The vast majority of this growth in unregulated volumes has come from Asian export credit agencies (ECAs). In fact, in 2014, 83 percent of total global unregulated trade-related official support was issued by Asian ECAs, and from 2013 to 2014, the volume of unregulated trade-related official support from governments in China, Japan, and Korea increased over 20 percent from $117 billion to $151 billion.
In short, as ITIF has written on a number of occasions, including most recently in its report The Export-Import Bank’s Vital Role in Supporting U.S. Traded Sector Competitiveness, the latest data convincingly show that export credit competition is not going away — it is, in fact increasing.
This demonstrates the folly of those who would advocate that the United States unilaterally end the provision of export credit assistance. For not only does the Bank play a key role by stepping in to provide financing or insurance for export transactions that might not otherwise occur, it also plays an instrumental role in leveling the playing field for U.S. exporters by matching the credit support that other nations provide, ensuring that U.S. exporters are able to compete based upon the price and performance features of their products.
Yet, unfortunately, as Ex-Im Bank President Fred Hochberg noted last week, American companies — including many small businesses — are already losing out on sales due to the growing uncertainty among overseas buyers that the Bank may not be there to back their purchases with insurance and capital financing.
Those in Congress who profess to be concerned by the state of the American economy and the ability of its enterprises to compete in global markets need to recognize that the notion that enterprises compete as independent entities in global markets simply does not reflect the reality of modern global economic competition. As Greg Tassey, the Department of Commerce’s former Senior Economist, notes, the reality is that, “U.S. manufacturing firms are attempting to compete largely as independent entities against a growing number of national economies in Europe and Asia in which government, industry, and a broad infrastructure (technical, education, economic, and information) are evolving into increasingly effective technology-based ecosystems.” The notion that “if America unilateral disarms the Ex-Im Bank, competitor nations will follow” is simply not realistic.
In conclusion, policymakers should be as concerned with America’s economic competitiveness as they are with America’s military and national security competitiveness. In fact, the first underpins the second. To not reauthorize the Ex-Im Bank would unnecessarily endanger America’s global leadership on both counts.
(Top image: Courtesy of Thinkstock)
This piece first appeared on The Innovation Files.
Stephen Ezell is Director of Global Innovation Policy with the Information Technology and Innovation Foundation.