There is a lot for President-elect Donald Trump to like about the US Export-Import Bank (EXIM). It promotes US exports, supports good jobs in the country, and doesn't cost taxpayers anything—in fact it returns money to the Treasury.
In recent years, however, financing from EXIM has been uniquely constrained. The Bank’s charter lapsed from June 30, 2015 through December 4, 2015. During this period, EXIM could not authorize new lending, guarantees, or insurance, and in fiscal year 2016 authorizations fell by more than 50 percent relative to previous periods. Even after reauthorization, the Bank reopened without a Board quorum, which prohibited medium- and long-term transactions above $10 million, extending the impact of the lapse on larger exports.
The Bank is important to the many companies that want to export US goods abroad. Some of those who are dependent on EXIM for financing their exports are considering shifting manufacturing to countries that offer more reliable export support. Last year, while EXIM authority lapsed, General Electric reportedly shifted some production to China and Europe to take advantage of local export credit agencies. Boeing, which relies on EXIM to compete with Airbus, considered a similar move.
Different from what EXIM’s clients say, those who would prefer to see the Bank closed argue that it crowds out private banks, boosting the profits of exporters. They don’t believe companies need EXIM funding, rather that it merely helps them goose profits—a type of corporate welfare. If this were the case, then EXIM would have no effect on exports.
New research tests whether EXIM fills a market gap and supports additional US exports or only supports profits, with no effect on exports. Comparing changes in financing and changes in exports to over 130 trade partners over the last eight years, EXIM support has positive and significant effects. Every dollar lent results in $1.35 of additional US exports, and there is strong evidence that the result is causal. If financing simply moved with exports, last year’s finance and next year’s finance should also correlate with exports. Not so: Only lagged finance and contemporaneous financing are important for export flows.
While EXIM remains only partially functional, other countries are expanding their export credit agencies to grow exports. China, Japan, and Korea, for example, have expanded export financing in recent years, and these three countries together now account for more than half of global export support. Making EXIM fully functional again will help US exporters compete with Chinese, Japanese, and Korean firms on a level playing field.
Approving new board members or changing the requirements for board authorizations could be a quick win for Trump’s agenda of keeping manufacturing and good jobs in the United States. When private banks are unwilling to lend to some trading partners, EXIM is an important tool that allows US exporters to compete in foreign markets. That helps America stay great.
Disclosure: The author is a member of the EXIM Bank’s Advisory Committee.