In the current debate over congressional reauthorization of the U.S. Export-Import Bank, Washington policy makers could do worse than take a cue from MTV’s The Real World: “Stop being polite and start getting real.”
I’m talking about dealing in the reality of how the world works, rather than how we wished it would work, when considering policy initiatives.
Ex-Im Bank opponents present a compelling argument: “Keep the government out of the business of picking winners and losers.” But to chalk up the Bank’s role in U.S. economic growth to “crony capitalism” misses the point of its existence.
A closer look reveals that when it comes to the U.S. Ex-Im Bank, the winners are always American businesses that would otherwise be undermined by the foreign governments subsidizing their homegrown businesses in the global marketplace. And that’s why Ex-Im is so important. It exists to ensure U.S. companies can sell their goods and services in foreign markets where foreign competitors use distortionary practices (i.e., financing subsidies) to undercut American companies.
In a perfect world, the company selling the best product at the most competitive price would be the winner of new business opportunities. As Wells Fargo CEO John Stumpf pointed out at the recent Export-Import Bank conference in Washington, D.C., American brands are in high demand all around the world; people want to buy American stuff. But the distortionary practices of other countries have the ability to shut U.S. goods and services out of those markets.
In the real world (that’s lower-case “r”, lower-case “w”), 59 countries are sweetening the deal for the foreign buyers of their homegrown goods and services with very attractive financing opportunities. The U.S. Ex-Im bank is just trying to level the playing field.
Ultimately, the loss of the Bank would mean the loss of opportunity for American businesses looking to sell their goods and services abroad. According to the Congressional Research Service, export financing,”[I]s now a trillion dollar market that supports approximately 10% of global trade.” URL: https://www.fas.org/sgp/crs/misc/R42472.pdf
In 2011, the U.S. Ex-Im Bank provided $33 billion in credit and insurance support to American companies. But according to the National Association of Manufacturers (NAM), the assistance provided by foreign countries is far greater. For example, the Financial Times estimated that between 2009 and 2010, the China Development Bank and the China Export Import Bank offered loans upwards of $110 billion to governments and firms in developing countries.
Sub-Saharan Case Study
For the business, financial, and policy leaders who gathered at Ex-Im’s recent Washington conference, rapid growth in Sub Saharan Africa is illustrative of the opportunities for American firms to support the region’s insatiable need for energy, health care, and infrastructure. According to the Bank, a record-high number of loans were authorized in the region last year to 35 countries, including Cameroon, Ethiopia, Nigeria, and Tanzania.
For example, the Bank provided a $15.7 million loan to the government of Lagos, Nigeria to finance their purchase of 32 fire trucks from W.S. Darley & Co. Based in Illinois, this more than 100 year-old American company also has manufacturing, engineering and research facilities in Wisconsin and Iowa.
Later in the conference, U.S. Secretary of State John Kerry struck an even more aspirational chord when talking about the importance of American exports in the global economy. U.S. economic policy, he explained, is directly linked to U.S. foreign policy. According to Secretary Kerry, the globally connected economy is indeed a big opportunity for American business, but ultimately our investments abroad help tap into the potential of people around the world. In sub-Saharan Africa, for example, these kinds of investments are bringing power to 90 million children who have no electricity at school.
Lessons at Home
Alongside Secretary Kerry’s powerful message of global interconnectedness and empowerment, David Wessel of the Wall St. Journal offered some sobering thoughts about the state of the economy here at home. Wessel observed that many feel the U.S. economy hasn’t delivered enough opportunity for American workers. So in thinking about trade and economic policy, Wessel explained, we should also consider measures needed to increase the ability of the U.S. middle class to do better in the current environment.
And that’s precisely what the Ex-Im bank has done for so many companies trying to do business in a competitive, and sometimes unfair, global market. Last year alone, the Bank’s activities helped support more than 205,000 U.S. jobs. So while some opponents will continue to argue that Ex-Im picks winners and losers, the reality is that the real winners here are the thousands of American workers whose livelihoods are supported by the Bank’s activities.
In the debate over whether to reauthorize Ex-Im this summer, it is critical to confront the realities of global competition and understand that in the absence of Ex-Im support, U.S. companies simply will not be able to compete and win. While other nations continue to game the system to their home country’s advantage, the U.S. economy cannot afford to forfeit new opportunities because we wished the world were different.
Kate Bernard is a managing director at Hamilton Place Strategies.