Issue in Focus
May 10 2019
Why did the United States Senate revive one of China’s favorite sources of American tax dollars right as President Trump is about to escalate our nation’s trade dispute with the communist government in China?
It just makes no sense.
This Wednesday the Senate confirmed three nominees to the Export-Import Bank, giving the government agency the quorum legally required to authorize loan guarantees larger than $10 million for the first time since 2015.
Created by executive fiat in 1934 to extend lending to Soviet Russia, the Export-Import Bank has a long history of enriching corrupt foreign elites abroad and politically connected big business here at home.
Here is how it works: a large global corporation will give money to the right politicians here in the United States, and those politicians will then direct the Export-Import Bank to guarantee financing for one of the global corporation’s foreign projects. This global corporation is then able to save millions in interest payments when financing its foreign project by securing below-market interest rates thanks to the government guarantee to repay the loan if the project fails.
Rich global elites claim that the loan guarantees made by the Export Import bank are cost-free programs that support middle-class jobs.
But as any honest economist will tell you, there is no such thing as a free lunch. The Congressional Research Service reports that, “Subsidized export financing merely shifts production among sectors within the economy, rather than adding to the overall level of economic activity, and subsidizes foreign consumption at the expense of domestic consumption.”
And which foreigners are benefiting from Ex-Im subsidies? Mostly state-owned foreign airline and energy companies like Mexico’s Pemex and Dubai’s Emirate Airlines.
But for those years when the Export-Import Bank has had a quorum to make loan guarantees over $10 million, the biggest winner has always been the Chinese government. For example, in 2013 the Export-Import Bank backed a $63 million deal to build a semiconductor manufacturing plant in China. How exactly does subsidizing Chinese semiconductor manufactures help save American jobs?
And as the last three years have proven, American businesses don’t need Export-Import Bank loan guarantees to compete internationally. Between 2014 and 2018, when the bank was unable to authorize large guarantees, U.S. exports actually rose from $1.7 trillion to $1.8 trillion.
Three board members will have their four-year terms expire in 2021. We will have another shot to stop Beijing’s Bank then, and we should.