Congress is at the precipice of another ‘cliff’: The Export-Import Bank of the United States must be reauthorized by September, or it will have to close for the first time since it was created in 1934.
The fight over the bank is an esoteric one with confusing and shifting battle lines. While the Tea Party is currently pushing not to reauthorize the bank, a variety of ideological positions are coming into conflict. Now, after 80 years of largely uneventful reauthorization votes, there is a very real chance that the bank’s authority won’t be renewed.
This conflict might not seem relevant to the average person. But the fights over the Export-Import Bank have important implications about how trade policy should work in the 21st century. Here’s what you need to know to understand Congress’s latest battle:
What is the Export-Import Bank?
The ‘Ex-Im Bank,’ as it’s known, is a corporation owned entirely by the federal government. Technically located within the Executive Branch, but independently housed and operated by finance professionals, the bank’s mission is to boost American exports. To do that, it supplies various types of credit to U.S. businesses that need them to operate. Generally, the Ex-Im Bank supports transactions that private banks won’t finance, and that are guaranteed to support or create American jobs. The most common type of credit the bank supplies is loan guarantees (rather than outright cash lending) to foreign companies that buy things from U.S. businesses. By providing loan guarantees and other forms of indirect financing, the bank ensures that American exporters have customers who can pay to buy their goods.
The vast majority of the credit transactions the bank authorized in 2013–89 percent — were in support of U.S. small businesses. But the vast majority of the dollar amount of credit authorized went to support much larger companies like Boeing, whose customers would otherwise not have bought so many of its planes. Still, small businesses who rely upon the bank for export insurance that private markets won’t provide say they would be left to shoulder the risk of losses should clients fail to pay.
The Ex-Im Bank costs taxpayers nothing, and actually returns revenue to the Treasury. The government turned a $1.057 billion profit on Ex-Im Bank activity last fiscal year. (Depending on which sort of accounting rules you go by, the bank will either make taxpayers $14 billion over the coming decade, cost them $2 billion, or perform somewhere in between.) The bank had a default rate below 0.25 percent last year on the various types of business credit it offers. Since it was created in the 1930s, it has an overall default rate below 2 percent.
Who wants to kill it?
The current push to block the bank’s reauthorization is coming from hardline conservative groups like the Club for Growth and the Heritage Foundation. Both groups have pledged to use Ex-Im Bank reauthorization as a “key vote” in scoring the legislative records of lawmakers ahead of the midterm elections, and Americans for Prosperity has made similar threats. That pressure to oppose the bank from outside Congress is combining with the increasing ideological purity of the Republican Party within Congress to create a great deal of momentum against reauthorization.
When former Majority Leader and longtime supporter of Ex-Im reauthorization Eric Cantor (R-VA) lost his primary election, for example, and handed his seat to an unheralded Ayn Rand devotee and hardline supply-side ideologue who almost surely opposes the bank, the New York Times ran a front-page story on what Cantor’s loss meant for the bank and for American exports. “Eliminating the bank has become a conservative cause on par with repealing the Affordable Care Act,” the Times wrote. Cantor’s successor in the Majority Leader position, Kevin McCarthy, has announced that he opposes reauthorization of the bank.
What would happen if the Ex-Im Bank disappeared?
It’s tough to give a simple answer to that question, since the bank’s authorization has never been in serious jeopardy until now. But some numbers on the bank’s performance are instructive: Since the bank began calculating its impact on American jobs in 2010, it estimates that it has supported 1.2 million jobs in the country. The bank authorized a total of $27.3 billion in credit last year across more than 3,800 separate transactions, supporting a total of $37.4 billion worth of export sales by U.S. companies.
The evaporation of the support Ex-Im provides wouldn’t guarantee that all those jobs and all those business deals disappeared. But they would all be vulnerable. Since every other developed country in the world maintains some equivalent to the Ex-Im Bank to protect their own exporters, and voracious exporters like China are even more cutthroat than the Ex-Im Bank is allowed to be, it would become substantially more difficult for American companies to compete in the global marketplace.
The list of groups and individuals who have warned of economic consequences if the bank disappears includes the U.S. Chamber of Commerce, the National Association of Manufacturers, the White House, and Texas Gov. Rick Perry (R). Even Delta Airlines, which has long criticized the bank for putting domestic airlines at a disadvantage by helping foreign airlines to buy Boeing planes, has come around and indicated support for reauthorizing the bank.
How did the bank become political football?
Many different kinds of thinkers and analysts have wanted to end the Ex-Im Bank at one point or another in its nearly nine-decade history. Nobel Prize-winning economist and frequent progressive hero Paul Krugman opposes the bank in theory, but doesn’t want the bank wound down until the economy gets stronger. Fellow economist and liberal Dean Baker agrees that Ex-Im is primarily a protectionist entity that should not exist in a modern economic system. On the right, libertarian economists and free-market purists have long opposed the bank’s interference in the marketplace.
Some political institutions have been consistent in their ideological perspective on the bank, whether critical or supportive. But many of the individual politicians who determine the bank’s fate, on all sides of the political spectrum, have shifted according to the prevailing winds. Democrats in Congress and in the press, for example, derided the bank for decades for its role in propping up a variety of transactions that offended their values, including infrastructure deals that helped dictators to fossil fuel contracts. Meanwhile, since the vast majority of the monetary value of the bank’s work goes to giant corporations, politicians have repeatedly attacked Ex-Im as a fountain of corporate welfare. (Bank officials are quick to point out that the vast majority of the businesses for whom it secures credit are small companies.) The broad, though changing, opposition to the bank provides one of the clearest indicators of the bank’s precarious position today.
What are the chances the Ex-Im Bank really doesn’t get reauthorized?
Potentially imposing grievous harm both to a signature American manufacturer like Boeing and to an institution that has supported hundreds of thousands of jobs each year at businesses large and small alike without costing taxpayers anything may seem like enough to keep the Ex-Im Bank safe. After all, the bank’s value for protecting American business interests has always been enough in the past, and supporters today rightly note that other countries that maintain similar institutions to support their own industrial base are not going to lay down their economic arms if Ex-Im evaporates.
But it’s hard to see where the reauthorization votes will come from. Nearly 100 House Republicans voted “no” when the bank was up for reauthorization two years ago, and the pressure on their colleagues to join the opposition is much stronger now that prominent conservative organizations have promised to use the issue as a primary determinant of which candidates get their support during this November’s election. With 41 of his members backing the bank publicly, Speaker John Boehner (R-OH) could certainly still get a reauthorization bill passed if he were willing to rely on Democrats’ votes to pass something that the grassroots of his party increasingly detests. Business lobbyists from the Chamber of Commerce and other powerful groups will exert influence over the vote as well, and Boehner might ultimately get a large enough number of Republicans on board to be politically palatable.
With economists on the left opposing the Ex-Im Bank on principle, powerful electoral influencers on the right prepared to punish GOP dissenters, and sexy headlines about corruption and scandals at the bank threatening to drown out its public relations push, it is difficult to chart a path to reauthorization.