US manufacturing and the rift over the Ex-Im Bank

Manufacturing generates more revenue for the U.S. economy for each dollar it spends than any other industry. But with the global economy weak and a strong dollar stifling U.S. exports, domestic manufacturers face stiff headwinds. Against that backdrop a sharp divide has appeared in the House of Representatives over Congress’s failure last June – for the first time in eight decades – to renew the charter of the Export-Import Bank (“Bank”). Just last week more than 50 moderate House Republicans broke ranks to align themselves with nearly all House Democrats in a push to reauthorize the Bank’s charter. The House vote on reauthorization comes later this month, and even though reauthorization for decades has received bipartisan – often unanimous – support, the outcome of the upcoming vote is uncertain. And, as the Bank’s fate hangs in the balance, many (or, at least, far more than would care to confess) wonder what exactly is the Bank, and what are the pros and cons of renewing its charter.

The bank's role

The Bank has been the nation’s export credit agency (“ECA”) since 1934. It has stepped in to support U.S. exporters, often providing them with loans, loan guarantees, and other financing support, at times when commercial banks have found it too risky to finance foreign purchases. For example, in situations in which a foreign buyer required a domestic exporter to provide financing for an overseas purchase, but private lenders refused to accept the foreign receivables as loan collateral, the Bank has salvaged certain transactions either by providing the required financing directly or by guaranteeing the loan of an otherwise unwilling private lender. In other words, by filling the gap in transactions where traditional financing was unavailable, the Bank ostensibly supported domestic manufacturing by helping companies access foreign markets.

Arguments in support of the bank

Noteworthy proponents of the Bank include the U.S. Chamber of Commerce and the National Association of Manufacturers. Proponents contend that many small businesses can offer only foreign receivables as security for export loans. Therefore, they continue, the Bank is indispensable to small business export efforts, as those companies would otherwise be unable to obtain financing in light of the perceived credit risk.

Proponents further submit that more than 60 other nations with a material stake in the global economy, including China and Japan, have ECAs that aggressively back exportation from their respective countries, and that ECA support is often required just to bid on a wide range of business opportunities abroad. Some, for example, see the Bank as vital to the nuclear power sector – an area where they say eligibility to quote certain projects always requires ECA support.

In response to frequent criticism that most Bank dollars go to corporate goliath’s such as GE, Bechtel, Caterpillar and Boeing, proponents contend that the strong support of those companies has a positive cascading effect that benefits, if not sustains, thousands of smaller companies that supply goods and services to those larger exporters. The same people predict that loss of the Bank would mean less business for suppliers, causing workforce reductions throughout their ranks.

Proponents add that letting the Bank expire would mean unilateral economic disarmament by the U.S. in an era of fierce global competition. They further hold out the Bank as profitable. According to one statistic, Bank revenue over the last 20 years exceeded its operating costs by $7 billion, all of which the Bank returned to the U.S. Treasury.

Arguments against the bank

Bank opponents generally see it as a free market invader that provides “corporate welfare” to large, politically-connected companies with no need for government handouts.

For Boeing alone, opponents claim that in 2009 the Bank guaranteed $8.4 billion of loans, equaling 90 percent of the value of all Bank loan guarantees that year. The following year, opponents claim that Boeing received $6.4 billion in Bank loan guarantees – 63 percent of the value of all Bank guarantees for that year. Opponents contend that five companies received 83 percent of the Bank’s total loan guarantees in 2013. They further claim that the Bank, like many government agencies, is mismanaged and not immune to politics as usual. Their poster child on that point is Solyndra – the much-publicized alternative energy company that failed famously, but not before it received $10.3 million in loan guarantees under a program specially designed to support renewable energy.

According to opponents, although the Bank has allegedly paid for itself for a number of years, the Bank exposes taxpayers to tens of billions of dollars in potential liability. One critic surmised that the Bank’s current outstanding obligations may exceed the $140 billion limit set by Congress. Opponents often cite to the $3 billion dollar bailout of the Bank in 1987 due to its own mismanagement of funds. They contend that the Obama administration – aided by large companies seeking further Bank “subsidies” – aims not only to reauthorize the Bank, but also to substantially expand its borrowing capacity, further enhancing taxpayer liability should the Bank fail again.

Some opponents contend that the Bank will cost taxpayers $2 billion over the next 10 years. They condemn the federal government for not making better use of that tax money. They see that money better applied to repairing infrastructure or strengthening national security rather than supporting the funding of the largest U.S. Fortune 100s.

Will the bank survive?

If the House votes for reauthorization later this month, the Bank will not be out of the woods. The issue will then move to the Senate, where, according to some, Republican leadership is not certain to put the issue to a vote. Absent a favorable (or any) vote in the Senate, the Bank would continue only for as long as it takes to wind up its business on loan obligations already assumed when Congress allowed the Bank’s charter to lapse last June.

But although the Bank’s future is in the balance, its survival may be assured by the strength of its allies – particularly those Fortune 100s that have leveraged the Bank for years to drive their exports. It is noteworthy that not long after the Bank’s charter lapsed last June, one major corporation moved a substantial part of its operations to a foreign country, which, according to that company, provides dedicated ECA backing. And with other companies now threating to follow suit barring Bank reauthorization, it is hard to imagine that we have seen the last of the Bank.