This week we celebrate not only our country’s independence from Great Britain, but also the second anniversary of our freedom from the yoke of the Export and Import Bank.
In an imperfect environment where cronyism—the unhealthy relationship between government and business—is rampant, the fact that Boeing, General Electric, and other giants have been barred from taxpayer-backed loans for the past two years is a huge victory. For the first five months of that period, the bank’s charter effectively expired—but even since it was renewed, it has been unable to make loans above $10 million.
President Donald Trump wants to restore the bank’s full lending authority, but it’s really time to slay the beast. That’s what Rep. Justin Amash, R-Mich., wants to do — along with Republicans Reps. Dave Brat of Virginia, Ken Buck of Colorado, Michael Burgess of Texas, Scott DesJarlais of Tennessee, Walter Jones of North Carolina, Jim Jordan of Ohio, Raul Labrador of Idaho, Thomas Massie of Kentucky and Tom McClintock of California — by reintroducing a bill to shut down Ex-Im Bank once and for all. Within 30 days of its passage, the agency would have to stop accepting modern loan applications.
While there was no doubt that the 10 largest Ex-Im beneficiaries would have survived without government handouts – they benefited from 65 per cent of the bank’s business – it is worth considering what has happened since July 1, 2015.
First, the top ten beneficiaries were no better or worse off without Ex-Im. Take Boeing, for example. It is the bank’s No. 1 beneficiary and continues to thrive and sell commercial aircraft worldwide. This is not surprising, since 90 percent of Boeing’s aircraft were sold without any Ex-Im assistance.
Boeing’s market capitalization has also increased from $99 billion in June 2015 to about $120 billion. While I can’t say that Boeing wouldn’t be even richer and bigger with full Ex-Im support, it’s clearly doing well. It’s also not the federal government’s role to prop up the profits of private giants through subsidies.
The company is doing well compared to its rival Airbus, in part because the European manufacturer has struggled to sell its A380 superjumbo. And that is ultimately what this business is all about. If you make a plane that no one wants to buy at a given price, no amount of subsidy will change that.
In addition, Airbus has not been able to absorb as much subsidy as usual, as the UK’s Serious Fraud Office has launched a criminal investigation into Airbus’s dealings over allegations of bribery, fraud and corruption. This shows that the world will continue to produce commercial aircraft even if Airbus and Boeing sales are not subsidised by taxpayers.
This was because foreign airlines that received affordable loans from Ex-Im could typically obtain credit and find lenders without Ex-Im guarantees, could afford to purchase aircraft without subsidies, and did not decide to purchase aircraft because of the existence of subsidies.
U.S. exports overall do not appear to be affected by the end of Ex-Im. Monthly trade data from the U.S. Department of Commerce show a decline in U.S. merchandise exports starting in January 2015—six months before the expiration of the bank’s charter. The slowdown also appears to be affecting services exports, suggesting that Ex-Im financing was not an explanatory variable.
Moreover, the 2017 data, compared with the same period in 2016, show that exports are rebounding without any change in Ex-Im status. As my colleague Dan Griswold, co-director of the Mercatus Center’s Program on the American Economy and Globalization, who provided the data, noted, “the bottom line is that U.S. export growth has been slowing since 2012 and picked up again in 2017, largely because of global growth rates. Export-Import Bank status simply wasn’t a factor.”
This is not too surprising. Economists have shown that export subsidies have very little impact on the trade balance. It is time for us to secure our complete independence from the Export-Import Bank by ending it. But until that happens, we can continue to celebrate its dormancy.
