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  November 7th, 2015 | Written by

Export-Import Bank is Not Corporate Welfare

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  • Cornell prof: Politicians imagine that the rules of free markets apply to international trade.
  • Thanks to the French government, Airbus can seal a deal Boeing can’t because of lack of financing and guarantees.
  • Congress has made it clear that depending on EXIM is a risky proposition.
  • EXIM authorization could be up for debate in another year or two even if Congress renews it tomorrow.

The U.S. House of Representatives has passed, and the U.S. Senate is considering, a bipartisan bill to re-open the Export-Import Bank, a federal institution that facilitates U.S. exports with loans, insurance, and credit guarantees.

While the trade bank’s mandate is to help U.S. businesses face a global economy, critics say its practices mainly boost multi-national corporations.

Steven Kyle, an expert in macroeconomics and government policy and an economics professor at Cornell University, says that considering the bank’s practices a form of corporate welfare misses the point.

“There are many politicians out there who would like to imagine that the world of international trade is one where the rules of free markets apply,” said Kyle. “However pleasant that thought might be, it is not the world we actually live in.”

In the real world there are competitors who would gladly use local exports-imports banks to steal deals from U.S. exporters, Kyle noted. “This is particularly true in the case of aircraft manufacturers, where Boeing’s main competitor, Airbus, can offer export credits and financing,” he added. “Thanks to the French government, Airbus can also seal a deal that we cannot because of lack of financing and guarantees.”

While EXIM tout its services to small businesses, the basic problem that the bank helps solve is one faced by large and small companies alike: How do exporters finance sales abroad when commercial banks refuse to lend because of lack of domestic guarantee or collateral? “Solving this problem may look like corporate welfare to some,” said Kyle, “but in reality it is the difference between the business going to our corporations or to foreign ones abroad.”

The failure of Congress to renew EXIM has caused damage that won’t be reversed no matter what happens now, according to Kyle. “Once factories leave they don’t come back,” he said. “Congress has made it crystal clear that depending on the Export-Import Bank is a risky proposition and it will take many years to erase that perception. After all, the authorization could be up for debate in another year or two even if Congress reverses course and renews it tomorrow.”