Battle over export credit harms US
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For the second consecutive time, Capitol Hill is balking over renewing the US Export-Import Bank’s licence. In 2012 Exim just scraped through with a two-year lease of life. This time the export credit agency might not be so lucky. Add in Congress’s refusal to give the White House fast-track negotiating authority or approve the US International Monetary Fund quota and you arrive at a troubling picture.
Vital planks of US international economic engagement are at stake. Each delay deepens the uncertainty and imposes a cost on America’s reputation. In the case of the Exim Bank, it also imposes a cost on US exporters. The sooner Congress acts, the better. Waiting until Exim’s licence expires in September should not be an option.
Exim’s chief opponents are Tea Party Republicans who believe the bank is a “relic of the Depression era”. In their view Exim disrupts private financing and subsidises foreign competitors. With almost $140bn in outstanding exposure, it also puts the US taxpayer on the hook. Each of these criticisms is overblown.
First, Exim enables projects in regions that private lenders fear to tread – energy deals in the Philippines, manufacturing exports to Africa, and so on. In many cases an Exim loan guarantee is the difference between a US company securing an order or failing.
Second, Exim does indeed provide loans to foreign buyers, often governments, that amount to a subsidy. This is particularly true in aircraft financing: Boeing is a disproportionate beneficiary of Exim’s largesse. In a perfect world this would not be necessary. But other governments have more generous export-credit subsidies. It would be odd were the US to disarm unilaterally. By international standards, Exim’s practices are tightly constrained.
Finally, the US taxpayer makes money from Exim, which transferred more than $1bn in fees last year to the Treasury. Furthermore, at less than 0.5 per cent, Exim’s default rate is negligible. More than 2m US jobs are linked to its loans or loan guarantees.
What then is the objection? The problem is ideological. A rowdy minority of Republicans has intimidated the party’s leaders into quiescence. To them, any government role reduces market efficiency. The pleas of US business fall on deaf ears. Much the same logic is holding up reform of the IMF’s governance structure to reflect the rise of emerging markets. Congress continues to block changes that were initiated during the Bush years and completed by Barack Obama. On the other side, a vocal majority of Democrats are blocking progress on US trade deals by refusing to grant Trade Promotion Authority to the executive. Mr Obama will pay a price for that this week on his trip to Japan. His visit was originally billed as a crowning moment for the Transpacific Partnership talks. Those are now in abeyance. Progress is unlikely until Congress grants him TPA.
None of this merits headlines in the US. The rest of the world, meanwhile, has come to expect paralysis from Washington. Instead of waiting for the US to approve Bretton Woods reform, countries such as China and India are stepping up bilateral lending to smaller developing countries. Such loans come with fewer conditions and often on more generous terms. Unlike Exim’s fate, there are no question marks hanging over other export-credit agencies. Likewise, on trade, the longer the US prevaricates, the more countries jostle to cut separate deals with China.
There was a time when Congress would wave through Exim’s reauthorisation unanimously. Not so long ago there was also a working consensus for US-led trade liberalisation. Those certainties now look wobbly. By blocking US engagement, Congress is harming America. It is also chipping away at the US-led global economic order. No good can come of it.