Recently I was asked to make a presentation to a manufacturing association’s annual meeting on the topic of U.S. competitiveness and competitiveness policy. When I got to the policy part of my talk I mentioned that it’s important that we take the good ideas from both parties—Republicans and Democrats—as they relate to manufacturing competitiveness policy.
One CEO piped up and said, “There are no good ideas from the Democrats,” and most in the room laughed in approval. This implied that all good ideas from Washington related to helping manufacturers are coming from Republicans. Like the opposition from some Republicans, especially in the Tea Party, to reauthorizing the U.S. Export-Import Bank (Ex-Im Bank).
For these folks, helping companies, particularly manufacturers, export their products around the world constitutes inappropriate intrusion into the free market and an example of “crony capitalism.” As Ezra Klein writes, “a necessary predicate of reform conservatism is for conservatives to get comfortable fighting big businesses that partner with the state.”
Unfortunately, the painting of Ex-Im as corporate welfare ignores the tremendous value the agency provides to our economy. As the official export credit agency of the United States, Ex-Im provides financing and insurance for export transactions that might not otherwise occur, because private commercial lenders are unable or unwilling to provide financing to foreign purchasers of U.S. exports.
The bank provides this support at no cost to the U.S. Treasury, and in fact the Bank earned $2 billion more than the cost of its operations over the past five years, money it has returned to the Treasury to help reduce the federal deficit.
Moreover, Ex-Im plays a key role in leveling the playing field for U.S. exporters by matching credit support that other nations provide, ensuring that U.S. businesses are able to compete based upon the price and performance features of their products. The bank is thus a key institution supporting the competitiveness of U.S. manufacturers. For example, since 2009, the Bank has supported 1.2 million private-sector U.S. jobs, including 205,000 jobs in 2013 alone.
Nevertheless, just as right-wing populists have invoked the term “industrial policy” to foreclose any debate on policies that might support the competitiveness of U.S. industry, so opponents of the Ex-Im Bank seek to artificially cut off all intelligent debate regarding the important and needed role of export credit to support U.S. manufacturing exports by dismissing Ex-Im’s role as mere “crony capitalism.”
But their definition of what constitutes “crony capitalism” is effectively any proactive public policy that would assist U.S. enterprises in global competition. By their terms, it would be “crony capitalism” to expand the R&D tax credit or to support community college training programs focused on manufacturing skills; after all, aren’t these just another “hand out” to businesses?
Does Ex-Im Bank Create Jobs?
These opponents also argue that we’d create other jobs if we didn’t have manufacturing. For example, in his Washington Post op-ed, Charles Lane argues that if the Ex-Im Bank didn’t help manufacturing firms such as Boeing, Caterpillar, or General Electric (GE), the U.S. economy “might have created the same number of jobs, or more, at other firms.”
This might be true if we were dealing with firms in non-traded industries (e.g., if a grocery stores goes out of business in a local market another will likely take its place). But it’s not true with regard to manufacturing firms whose output is sold at least in part to non-residents of the nation.
If a traded sector enterprise loses significant global market share or closes, the enterprise that takes it place (and the production jobs that enterprise supports) may well be located in another country. If American traded sector firms lose out on deals overseas, not only do they cut jobs at home, but their suppliers (and their suppliers’ suppliers) do as well.
In addition, saying essentially “car production-car rental, what’s the difference?” ignores the fact that export-intensive U.S. manufacturing enterprises support some of the highest wage jobs in the U.S. economy, in part because exports contribute an additional 18 percent to manufacturers’ workers’ earnings.
Still, the populists will argue that the Ex-Im Bank supports only “big businesses.” First of all, so what? Since when did big business become the enemy? Clearly these populists are not aware of the fact that many, if not most, small manufacturers are first, second, or third-tier suppliers to big companies.
For example, when a large U.S. company successfully exports a jet aircraft, locomotive, or wind turbine, it’s effectively exporting tens of thousands of assembled parts contributed by thousands of U.S. small and medium sized enterprises (SMEs). For example, when foreign purchasers of Boeing aircraft receive export credit assistance, it’s not just Boeing that benefits, but also the 22,000 suppliers comprising Boeing’s extensive value chain.
Moreover, it actually turns out that Ex-Im’s export credit assistance plays an indispensable role in directly supporting SME manufacturers as well. In fact, in FY 2013, 90% of the transactions financed by Ex-Im directly supported small to medium-sized businesses, while the bank has financed more small business exports in the last five years than it did in the previous eleven years combined.
As such, an attack on the Ex-Im Bank is an attack on all U.S. manufacturers, because even for firms that don’t directly receive export credit assistance, it’s likely that one of their customers or suppliers do.
Continued operation of Ex-Im is particularly important today because competition from foreign export credit agencies is not abating—but in fact is increasing. As ITIF has noted, as a share of GDP, competitors such as Brazil, China, India, France, and Germany provide five to ten times more export credit assistance than the United States.
For example, in 2013, Germany invested 1.5 times as much in new medium- and long-term export credit financing as the United States, despite the fact that Germany’s economy is one-fifth the size of the United States. Further, examining cumulative investment over the past six years (FY 2008 to FY 2013) reveals that China has invested twice as much in new medium- and long-term export credit as the United States in current dollars, and almost four times as much as a share of GDP.
If the United States does not provide export credit assistance for foreign purchasers in situations where private sector lenders are unable to do so, the simple reality is that in many cases these would-be buyers will turn to European or Asian manufacturers, getting the export credit assistance required from a European export credit agency or from the Chinese Export-Import Bank.
Indeed, the argument that the United States “simply shouldn’t be” in the export credit assistance business because it’s an example of the government unnecessarily intervening in markets simply does not take seriously the reality of intense competition in the modern global economy, much of it supported by government policies. And for advocates who would like to see globally binding treaties limiting export financing, the odds of that happening if the United States unilaterally closes Ex-Im first are close to zero.
In conclusion, having a strong export economy driven by manufacturers is critical to the performance of the U.S. economy, and the U.S. Ex-Im Bank has played a vital role in supporting the global competitiveness of U.S. exporters.
As Jerry Jasinowski, the former President of the National Association of Manufacturers, argues, “Ex-Im should be called the U.S. jobs bank.” With Congress set to vote on reauthorization of the bank this year (its current authorization expires on September 30), the reality is that a vote against the Ex-Im Bank is a vote against American manufacturing. But hey, who cares, because as we all know, we don’t really need manufacturing. We can just be an economy of services.