Topic: Imports & Exports
“Even more telling is the performance of the U.S. economy and American exports during the four years when EXIM lacked a board quorum (2015–2019) and was barred from finalizing deals in excess of $10 million. During that time, EXIM authorizations fell from $21 billion in FY 2014 to $3.6 billion in FY 2018 (adjusted for inflation). However, also during that time, regular big-ticket EXIM beneficiaries continued to benefit from their easy access to capital markets and still had the ability to finance their export activities.”
Is it true that the Ex-Im shutdown between 2015 and 2019 had no real impact? No.
“However, a new study coauthored by Stanford Graduate School of Business finance professors Chenzi Xu and Adrien Matray challenges this narrative. Analyzing the impact of the temporary shutdown of the Export-Import Bank of the United States (EXIM) between 2015 and 2019, they find that companies relying on its support experienced a significant downturn in exports and saw their global sales plummet an average of 10% relative to similar firms.” [Source]
Whether you’re a very large company or a small business, 10% amounts to a lot of money. There are a few schools of thought on whether or not Ex-Im’s support for exports is a good idea, but the results of suddenly NOT having its support are fairly concrete.
At the time, Heritage Action for America (now known as the Heritage Foundation) Dan Holler said, “Conservatives delivered a historic policy victory.” So, the Heritage Foundation had their dirty fingerprints on the shutdown, making it no surprise that one of their own is arguing for the Ex-Im bank’s demise now.
Full contextual analysis of Section 4.3: Export-Import Bank here.
“Further, U.S. exports were utterly unaffected by the reductions in the Bank’s activities. U.S. unemployment fell to a level not seen in half a century, but exports soared with financing provided by commercial lenders.”
“Utterly unaffected” is completely false. See detailed analysis. As for unemployment falling “to a level not seen in half a century”, and “exports soaring”:
Ex-Im came back in late 2019, when unemployment was pretty low (3.6%.) lowest in a half-century, though? That’s more or less accurate, although it’s noteworthy that unemployment was lower in in April 2023 (3.4%), so maybe unemployment level is driven by a lot more factors than whether the Ex-Im bank is in business. (Spoiler: Yes. That’s not a ‘maybe.’) As for the claim that exports soared? No. The abstract of a research paper, written entirely as a study of the effects of the Ex-Im shutdown, reads in part:
“We study the role of export credit agencies — the predominant tool of industrial policy — on firm behavior by using the effective shutdown of the Export–Import Bank of the United States (EXIM) from 2015–2019 as a natural experiment. We show that firms that previously relied on EXIM support experienced a 18% drop in global sales during the shutdown, driven by a reduction in exports. Firms affected by the shutdown were unable to make up for the loss of trade financing, especially if they were financially constrained, and consequently laid off employees and curtailed investment.” [Source]
Full contextual analysis of Section 4.3: Export-Import Bank here.
“Exports promote U.S. economic growth only if the value of the resources used to produce them is less than the value of what we receive as imports in exchange for those exports.”
This is a gross oversimplification.
Exports do contribute to U.S. economic growth, but the relationship between exports and imports is more complex than just comparing the value of resources. When a country exports, it earns revenue, creates jobs, and stimulates domestic industries. Imports, on the other hand, provide goods and services that may not be available domestically or are cheaper or better in quality.
The core idea behind international trade is comparative advantage—countries specialize in producing what they’re best at and trade for the rest. If the U.S. exports something it’s more efficient at producing and imports something another country produces more efficiently, both sides benefit, regardless of the relative value of the inputs.
de Rugy’s statement implies that a trade deficit (importing more goods than we export) is necessarily bad, which is not always true. A trade deficit might indicate that a country is consuming more or investing more than it produces, but it could also reflect a strong currency or high consumer demand, which aren’t inherently negative for economic growth. See this Bite-Sized Brief where I explain how Trade Deficits work6, because Trump famously doesn’t understand them either.
In short, while it’s true that exports are beneficial when they add more value than the inputs, economic growth from trade is better understood through the lens of overall productivity and comparative advantage, not just the relative value of exports and imports.
Full contextual analysis of Section 4.3: Export-Import Bank here.
“The Bank does not support small businesses. Most of the Bank’s funding goes to large corporations such as Boeing—a recipient of 68 percent of EXIM’s loan guarantees and 30 percent of EXIM’s overall activities.”
It’s an absolutely outrageous lie that Ex-Im doesn’t support small businesses. 90% of their transactions are with small businesses (source below.) In terms of percent of total funding disbursed, de Rugy is correct that the bulk goes to larger corporations.
“Small business exporters need certainty and protection to tackle new markets, expand and create jobs. In FY 2014, nearly 90 percent of EXIM Bank’s transactions – more than 3,340 – directly supported American small businesses.” [Source]
Full contextual analysis of Section 4.3: Export-Import Bank here.
“The Bank’s accounting practices are deficient, and the Bank miscalculates its budget savings. While it claims that its operations will save taxpayers $14 billion over the next decade, the Congressional Budget Office has found that EXIM programs will actually cost taxpayers $2 billion.”
No, their accounting practices are not “deficient.” There’s a literal difference in accounting practices at work here, both of which are valid.
Ex-Im uses an accounting method called Federal Credit Reform Act (FCRA) accounting, which factors in raw numbers. The Ex-Im claims it generates a surplus for the government because it literally does – this is because the fees and interest paid by foreign buyers (and their lenders) often exceed the cost of providing the financial support.
The Congressional Budget Office uses a method called Fair-Value Accounting, which factors in the risks taxpayers take by backing Ex-Im loans and guarantees. In short, if the considered risks were to actually happen, the Ex-Im’s activities could result in a cost of $2 billion to taxpayers. For de Rugy to claim outright that one method is correct and the other is deficient is disingenuous and misleading. The debate isn’t about who is right, the debate is about whether or not one should account for the full-market risk that taxpayers are exposed to. It’s kind of a glass-half-full v. glass-half-empty scenario.
Full contextual analysis of Section 4.3: Export-Import Bank here.
“Critics of EXIM employ a host of defamatory slurs like “crony capitalism” and “Bank of Boeing.” The “Bank of Boeing” moniker is particularly misleading, as it was born in the wake of the 2008 financial crisis when the airline industry was particularly hard hit and private-sector financing was not available for many airlines looking to purchase Boeing aircraft. EXIM’s portfolio tends to be cyclical with different industries relying on export credit financing at different points in time, depending on economic conditions.”
This requires a little context to fully understand.
During economic downturns, such as the 2008 financial crisis, private-sector financing became scarce. In these periods, Ex-Im played a crucial role in supporting Boeing and other industries when commercial banks were unwilling or unable to provide financing for large transactions, such as purchasing aircraft. This situation contributed to Boeing’s large share of Ex-Im support at the time, which critics have latched onto (this was largely Ex-Im helping to secure the sales of Boeing aircraft to foreign airlines.) Ex-Im only steps in when private lenders cannot or will not provide funding (which is why it’s considered risky.)
Full contextual analysis of Section 4.3: Export-Import Bank here.
“All transactions must have “reasonable assurance of repayment,” which is why EXIM has an exceptionally low default rate, historically hovering around 0.5 percent—a default rate that is the envy of private banking.”
This is overstating how effective Ex-Im is by double. Ex-Im’s default rate as of March 2024 was 1.012%. [Source]8 While this is lower than the default rate for private lenders, it’s not lower by significant amounts, at least in 2024. The delinquency rate on business loans for the same time period was 1.13% – just over a tenth of a percent. [Source] Ex-Im’s historical default rate is typically under 2%.
Full contextual analysis of Section 4.3: Export-Import Bank here.
“When EXIM enters a deal, the American taxpayer is always protected first. If a deal goes into default, the U.S. taxpayer is paid back before any other lender.”
This is oversimplified and inaccurate. Ex-Im generally structures its financing to protect U.S. taxpayers from losing money by requiring collateral, securing repayment guarantees, and in some cases, sharing the risks with private lenders. Ex-Im does have mechanisms in place that minimize the risk of defaults, including insurance policies and reserves to cover potential losses.
If a borrower defaults on a loan guaranteed or insured by Ex-Im, the bank steps in to make the lender whole by covering the outstanding balance, using taxpayer-backed funds. However, Ex-Im then attempts to recover the funds by seizing collateral, restructuring debt, or pursuing legal remedies. Taxpayers are effectively reimbursed through these recovery efforts.
The statement about taxpayers being paid back before any other lender is not entirely accurate. The U.S. taxpayer is not automatically first in line for repayment in every case. It depends on the specific terms of the financing and the collateral structure. In some deals, Ex-Im may be a senior lender (meaning they have a higher claim), while in others, they might share risk with private lenders, who would then also stand in front of taxpayers in the line of who gets paid back first.
Full contextual analysis of Section 4.3: Export-Import Bank here.
“This ability to manage risk successfully is why EXIM actually makes a profit for American taxpayers, described in government parlance as “negative subsidy,” sending more than $9 billion to the U.S. Treasury for debt reduction since 1992.”
This is accurate. Here’s that source.
Full contextual analysis of Section 4.3: Export-Import Bank here.
“Close the Export–Import Bank, which serves mainly to subsidize foreign buyers’ purchases of goods from a handful of well-connected American manufacturers.”
See the entire section about that.
Full contextual analysis of Section 4.6: Trade here.