Can China offer a real alternative to liberal democracy?


Can China offer a real alternative to liberal democracy?


The politics of commercial diplomacy, Ex-Im and beyond

As of last week, it has been a full year since the U.S. Export-Import (Ex-Im) Bank—the government export credit agency which lends money to foreign buyers of American exports—has been unable to approve loans over $10 million. This is because Senator Richard Shelby, Republican of Alabama, is single-handedly holding up the nomination of a third member to the Ex-Im Bank’s five person board; all transactions over $10 million require board approval, and short of its required quorum of three members, no major loans can get through. Looking beyond the immediate fight over Ex-Im, however, underlying trends in both American and international politics suggest commercial diplomacy is on the rise.

The Ex-Im Bank is but one of many instruments of American commercial diplomacy; there is a wide range of policies the government uses to actively help individual American companies compete abroad. Through the Overseas Private Investment Corporation (OPIC), the U.S. government sells political risk insurance to American firms investing in “risky” developing countries. Moreover, U.S. ambassadors frequently lobby foreign governments to award procurement contracts to American firms. Similarly, officials from the Department of State, Department of Commerce, and Office of the U.S. Trade Representative often advocate for U.S. companies involved in investment disputes with foreign governments. What distinguishes active commercial diplomacy from general foreign economic policy—such as signing trade agreements—is that in involves deploying the resources and reputation of the government to help specific firms in particular transactions, rather than broadly setting the rules of the road for all firms to follow. It represents a significantly greater co-mingling of interests and activities between public and private actors.

While both Secretary of State John Kerry and Secretary of Commerce Penny Pritzker have placed considerable emphasis on advancing commercial diplomacy, the long running struggle to keep Ex-Im operating underlines the political fault lines that cut through the issue. On the one hand, as highlighted in the Ex-Im fight, commercial diplomacy can be criticized as crony capitalism or corporate welfare. Government resources are being used to support private gains. Thus those who prefer free and unfettered markets may see commercial diplomacy as simply another form of unnecessary government intervention, akin to industrial policy. At the same time, as globalization has come under attack from both the left and the right in this election cycle, it is easy to see how encouraging further globalization through commercial diplomacy could face populist pushback. Those supporting commercial diplomacy tend to favor greater integration in the global economy—a view which has found little support in the 2016 campaigns to date.

And yet, the current trends in American political debates over globalization may ultimately presage more, not less, reliance on commercial diplomacy. If politicians increasingly view the global economy through a zero-sum, mercantilist lens, they may be more eager to use the power and purse of the U.S. government to help American firms “win” abroad. Indeed, Congress, which has historically been more protectionist than the executive branch, has also consistently pushed the State Department to do more to actively defend the interests of U.S. companies operating overseas (see, for example, here and here). Aggressively fighting to help U.S. companies win contracts and compete abroad could be one plank of an “America First” policy. Thus even if America, and the world, becomes more protectionist, foreign economic policy may become even more preoccupied with assertive commercial diplomacy, even as interest in seeking mutual benefits through economic liberalization subsides.

If the U.S. government does start to prioritize more actively helping American firms in their foreign operations, it will still have a ways to go to catch up to many other countries. China, of course, is well known for using state resources to advance the commercial goals of Chinese firms venturing abroad—which should not be surprising, given that many of these firms are state-owned enterprises. But a number of other advanced democracies—including Japan, Korea, Germany, and France—also have closer and more coordinated relationships between big business and government than the U.S. does. And most of these countries show no signs of slowing down. As a recent report (PDF) from the Ex-Im bank notes, “In the wake of slowing global growth, foreign export credit agencies are becoming more aggressive.” In fact, some of these agencies are capitalizing on Ex-Im’s current plight, offering American companies export financing in return for the promise of job creation. General Electric Co., for instance, recently announced it would expand production in France because Coface, the French equivalent of Ex-Im, will finance GE projects in a number of emerging markets—the type of financing that GE used to get from Ex-Im.

Looking forward, unilateral disarmament in the competitive world of commercial diplomacy—as the U.S. is currently doing with the Ex-Im Bank—is likely to become increasingly rare. The ultimate effects of this accelerating international competition, in both economic and political terms, remain to be seen.