UPDATE: This post discusses the controversy that led up to the Export-Import Bank’s eventual, temporary reauthorization in September 2014. The 2014 reauthorization established a new expiration date for the Bank’s charter on June 30, 2015. You can find an updated primer here on the forthcoming June 30, 2015 deadline.
“The U.S. Export-Import Bank is up for reauthorization and is attracting an unprecedented amount of controversy in Congress,” write the Africa Growth Initiative’s Zenia Lewis and Senior Fellow Amadou Sy. The Ex-Im Bank’s charter expires on September 30 of this year, and the question of the reauthorization of its charter has become increasingly politicized.
What Is the Export-Import Bank?
The Export-Import Bank of the United States is an independent export credit agency that serves to “assist in financing the export of U.S. goods and services to international markets” by providing guarantees to foreign customers of U.S. exports. By assisting American exports, the Ex-Im Bank aims to support millions of U.S. jobs. It was established in 1934 by President Franklin D. Roosevelt and made an independent Executive Branch agency by Congress in 1945.
Many argue that the Ex-Im Bank has significantly benefited the American economy. The bank reported that it had supported over 1.2 million jobs over the last five years and 205,000 in the year 2013 alone. Additionally, the Ex-Im Bank has earned over and above the cost of its operations, running a $2 billion surplus. Since the 2008 financial crisis, financial institutions with such stability have contributed to the recovery of the American economy and have supported thousands of small businesses.
Moreover, the Ex-Im Bank contributes significantly to American business in emerging markets by providing low interest loans. As Sy and Lewis report:
Its support is particularly relevant for doing business with emerging markets, where export/import credit is hard to come by or insufficient for some of the large-scale projects taking place. And it’s especially important to U.S. business when doing work in regions like sub-Saharan Africa, where there is a global rush to do more business.
Sy and Lewis explain that “the work Ex-Im Bank is doing is important not only to U.S. companies looking to export to the continent, but also to the communities buying U.S. goods.”
Why Is the Ex-Im Bank So Controversial?
For the 80 years since its inception, the bank has enjoyed bipartisan support, facing little opposition to the reauthorization of its charter. However, critics have argued that Ex-Im Bank’s function competes with and can be filled by the private sector. As a lender of last resort of sorts for American companies looking for assistance to finance their exports, the Ex-Im Bank reports that it “does not compete with the private sector.” Rather, “Ex-Im Bank fills export financing gaps through its loan, guarantee, and insurance programs when the private sector is unable or unwilling to do so.” The bank also works closely with private sector lenders with 98 percent of Ex-Im transactions involving commercial banks.
Sy stresses that export credit agencies (ECAs) help businesses that might otherwise face difficulty in attaining financing. He comments that in cases where small and medium enterprises “export their products abroad, there may actually be a role for the government to work with the private sector. This is because SMEs typically face problems obtaining financing from commercial banks for export purposes.” He suggests that solutions to this problem “will probably involve schemes where ECAs like the Ex-Im-Bank will work together with commercial banks.”
Moreover, given that a number of other countries have their own export-import banks, many feel that the U.S. export sector would fall behind those other countries without the assistance of the Ex-Im Bank, thus also threatening U.S. jobs.
Among the countries that benefit from export credit agencies, China has seen growing trade relations in Africa strengthened by its trade legislation. AGI’s Lewis and Nonresident Fellow Witney Schneidman lament that while China’s “Export-Import Bank even has an office on the continent, the U.S. Export-Import Bank has to watch its reauthorization debated by Congress.”
Addressing congressional deadlock on reauthorization, Brookings Visiting Fellow Miriam Sapiro observes that “this Congress may have passed fewer pieces of legislation than in any other term since recordkeeping began. The recent track record of Congress on other pieces of trade legislation is hardly reassuring.” She suggests that this dysfunction has had a profound impact on trade legislation as the “renewal of the Export-Import Bank’s authorization, which runs out in less than two months, has run into a buzz saw of political opposition.”
Ultimately, Lewis and Sy urge policymakers to consider the following question as they decide on whether to reauthorize the Ex-Im Bank’s charter:
Does the U.S. want to have the capability to be a partner of choice to emerging markets like those in Africa, home to some of the fastest growing economies in the world, or does it want to stand on the sidelines while the continent continues to rise without it?
The U.S. still has some leverage over China, because China clearly wants a deal. ... U.S. financial markets also seem to have been boosted by the prospects of a U.S.-China trade deal, so I think it could have a negative effect on both financial markets and economic activity in both countries if a deal is not struck