– March 29, 2019
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Representative Justin Amash (R-MI) just reintroduced a bill called the Export-Import Bank Termination Act of 2019. The congressman honorably aspires to permanently close the federal credit agency because of its extreme cronyism.

Until 2015, the agency used its discretion to extend loans so that foreign corporations would buy American exports from large and well-connected firms. The leader of the winner’s pack was Boeing which would score 70 percent of all Export-Import Bank loan guarantees and 40 percent of all activities.

This is why Ex-Im was commonly called “the Bank of Boeing.”

No more, though. Since 2015, the Bank has been functioning at about 16 percent capacity. The reason: thanks to some Republican members in the Senate, it has failed to get the 3 members on its board of directors that are required to allow the agency to extend deals larger than $10 million. This constraint has been a welcome development to all of us who have spent years documenting not only all the cronyism at the agency, but also the distortions caused by the Bank’s discretion, usually deployed to favor big businesses.

In a forthcoming paper, the Mercatus Center’s Justin Leventhal and I take a close look at what has happened to Ex-Im, to U.S exports, to Boeing, and to taxpayers’ exposure since the agency lost its quorum in 2015. The first obvious consequence is that total approval by the Bank fell from $21 billion in FY2014 to $3.6 billion in FY2018. As Ex-Im’s portfolio has shrunk, American taxpayers have been exposed to less risk, dropping in inflation-adjusted dollars from a peak of $115.5 billion in FY2013 and FY2014 to $66 billion in FY2018.

This reduction in Ex-Im’s lending cap had a dramatic impact on its cronyist activities. The most striking example can be seen by looking at the evolution of the benefits that Boeing extracted from the Bank over the past four years.

In FY 2014, the last year with a full quorum, Boeing received almost 40 percent of all of the Ex-Im’s largess. This amount began dropping in 2015, after the loss of a quorum, to its current level of next to zero.  Rest assured, this decline in Boeing’s access to taxpayer funds had no impact on the company’s bottom line. In fact, until recently, Boeing’s market cap has continued to increase undisturbed by the lack of Ex-Im funding. That’s because Boeing – and most other of the Bank’s clients – are and always were perfectly capable of finding private financing thanks to the relative lack of risks in aircraft exports.

Since Ex-Im Bank aid to Boeing has dried up, Boeing not only has managed to find financing for its own projects, it has also helped form an entirely new financing program for its exports. The result has been record sales. Boeing not only found financing without the Ex-Im Bank, but two financial institutions are competing for the right to insure its exports. Xavian Holdings is currently filing suit against Boeing and another party claiming that the Aircraft Non-Payment Insurance program employed to insure Boeing’s exports was developed by them. Clearly Boeing’s aircraft were not risky export – or at least not risky enough to deter private investors from being willing to extend financing of the sort that Ex-Im asserts it alone is capable of providing.

While Boeing has had trouble in recent weeks due to problems with its 737 Max 8, this problem did not stem from a lack of Ex-Im Bank finances. Boeing has remained in a stronger position than when the Ex-Im Bank was operating at full capacity.

Other sources of financing have also arisen during Ex-Im’s enforced idleness. Merkel and Euler Hermes have both expanded their export financing in the United States, as have other banks and corporations eager to break into this market.

Without a quorum at Ex-Im,­­ small businesses have garnered the lion’s share of the Bank’s financing. Proponents of the Ex-Im Bank frequently assert that 90 percent of its deals support small businesses. This claim is disingenuous.

While the Bank labels 90 percent of the businesses to which it provides support as “small businesses,” these businesses have never in reality received close to 90 percent of the Bank’s aid.  That criticism doesn’t even touch on the fact that in FY2014 Caterpillar and Boeing were the first and fourth largest recipients of “small business” funds from the Ex-Im Bank!

A more accurate description is that in FY2014 “small businesses” (or those claimed by the Bank to be small) received only 25 percent of Ex-Im’s aid. By FY2018, in contrast, this figure had risen to 66 percent. Reducing Boeing’s dominance of Ex-Im’s finances, and Ex-Im’s increased focus on small businesses, have not been the only changes brought on by the limits placed on the Ex-Im Bank.  The portion of its support for exports to relatively rich nations decreased without a quorum to far more reasonable levels.

A great example of this outcome is provided by China. That country is a growing economy and the second largest in the world, so it’s not a place that one would usually consider to be a “risky” export destination. Despite this fact, exports to China represented 11 percent of the Ex-Im Bank’s authorizations in FY2014. Since losing its quorum, Ex-Im has cut this aid back to just 1 percent of such aid that it dispersed in FY2018. This amount is far more in line with the lack of risk in exporting from the largest to the second-largest economy in the world.

What about U.S exports overall? Since Ex-Im’s decrease in aid, US exports have risen slightly, in inflation-adjusted terms, from $1.7 trillion to $1.8 trillion between FY2014 and FY2018. This growth rate in on par with the one that prevailed when the agency was functioning at full capacity. This fact demonstrates that Ex-Im’s actions had no meaningful effect on total US exports.

The lack of impact of the Ex-Im Bank on exports shouldn’t be surprising given that even in FY2012 – the year in which it provided more aid than in any other – the Ex-Im Bank’s aid represented 2.31 percent of the value of all goods the US exported. (Note that the Bank has never subsidized exports of services.)  Or to put it another way: during its most active year, over 97 percent of all US exports of goods never received this aid in the first place. Other years, that number rose beyond 98 percent.

This development is all good news. But this good news will end if Ex-Im’s quorum is re-established. With so much data proving the irrelevance of the Ex-Im Bank, proving exporters are doing just fine without it, or proving a world with less Ex-Im financing is a world with less cronyism, we can only hope that, come September, Congress will vote not to re-authorize the agency’s charter.

In addition, from a political point of view, with Boeing so much in then ews following two recent crashes and with many taking a hard look at all the ways the company may have benefited from government favoritism,  it doesn’t seem like a good idea for any legislators to call for the revival the Bank of Boeing.

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Veronique de Rugy

listpg_veroniqueDeRugy AIER Senior Fellow Veronique de Rugy is also a Senior Research Fellow at the Mercatus Center at George Mason University and a nationally syndicated columnist. Her primary research interests include the US economy, the federal budget, homeland security, taxation, tax competition, and financial privacy.
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