Ex-Im’s Benefits Really Are Irrelevant to U.S. Exports

by Veronique de Rugy

On Monday, the U.S. Chamber of Commerce and National Association of Manufacturing rounded up the many Ex-Im interests and submitted an open letter to Congress urging representatives to keep giving them political privileges. The content of letter, obtained by the Hill, is unremarkable. It merely rehashes debunked talking points about how the bank promotes exports, employment, and (amusingly) fiscal responsibility.

What’s new is the number of signatories that these industry groups managed to round up. But don’t be impressed by 865 organizations, constituted mostly of local and state chambers of commerce and other industry trade and lobbying groups, that are urging the swift reauthorization of the Export-Import Bank.

The letter is silent about Ex-Im’s effects on employment and exports beyond its narrow sphere of influence, and for good reason. These charts that I released today at the Mercatus Center show why: The Export-Import Bank’s effects on both the total value of U.S. exports and total export-related employment is negligible.

Contrary to the rhetoric from corporate beneficiaries, the bank can only claim to have influenced roughly 2 percent of the value of US exports and export-related employment. There are simply no grounds to claim that the bank is a critical tool to promote exports and employment.

See the chart below, for instance. It uses data from the Annual Reports of the Export-Import Bank from FY 2009 to FY 2013, the International Trade Administration, and the U.S. Census Bureau, displaying the total value of U.S. exports and total number of export-related jobs from 2009 to 2013 and the proportion of them that the bank claims in its official reports to have affected. As you can see, Ex-Im’s effect is negligible:

Looking at 2013 alone, the 205,000 jobs that Ex-Im claimed to create or support represent only 1.8 percent of the 11.3 million export-related jobs reported by ITA for all US exports and the $37.4 billion in export value that Ex-Im claimed to have assisted represents only 1.6 percent of the roughly $2.3 trillion in value of total US exports reported by the Census.

Interestingly, the total value of U.S. exports actually increased from 2012 to 2013, while the total value of Ex-Im-backed exports decreased during the same time.

This move is just the latest in a series of predictable defensive moves in Big Business’s “all hands on deck” effort to reauthorize Boeing’s favorite piggy bank. We should expect the reaction from politically connected firms to become more aggressive as their government benefits are thrust under further scrutiny.

The tragic lessons of public-choice economics inform us why: Political benefits are concentrated on a few firms who fight like dogs to keep their privileges flowing. The costs are large, but they are dispersed among millions of Americans who are frankly too busy to closely examine the finer details of technical debates in D.C. Special interests, like those who signed the Chamber of Commerce/NAM letter to Congress, know this unfortunate reality and take advantage of it. This is why unjustifiable cronyist programs continue to be reauthorized despite public opposition and poor economic outcomes. (The great economist Marcur Olson expertly describes this dynamic in his classic book The Logic of Collective Action.)

The Ex-Im fight is just another iteration of this same old story. Ex-Im supporters are wealthy, organized, and popular in Washington. The Sunlight Foundation recently analyzed lobbying data for the 20 organizations that have lobbied Ex-Im the most; unsurprisingly, the vast majority of Ex-Im lobbying activity comes from organizations that are in favor of reauthorization. Only Delta Airlines, who actually sued the Export-Import Bank for impeding their business opportunities, is opposed. Their chart is below:

 

Connected corporations are so used to getting their way that they expect they will be able to easily fool us again. What’s different this time is the political climate: Americans have simply had enough of the same old crony politics. Eric Cantor’s remarkable upset against the dark horse crony-slayer, David Brat, sent a very clear message to the political establishment. Markets agreed: Boeing stock tumbled upon news of Ex-Im supporter Cantor’s loss.

The era of big business as business-as-usual just might be coming to a close. It can’t come soon enough for the unseen victims of the Bank’s activities. Heritage’s Diane Katz lists a few:

Australia’s Roy Hill mine ($694 million). The mine’s expected output (over the life of the financing) is expected to displace nearly $600 million worth of U.S. iron ore exports and cause a reduction of some $1.2 billion in U.S. domestic sales.

South Africa’s Kusile Coal power plant ($805 million); India’s Sasan coal power plant and mine ($917 million). Notwithstanding the Obama Administration’s war on coal, Ex–Im has been a generous source of public financing for coal projects abroad. These and other projects have exacerbated a 70 percent decline in coal prices since 2008.

Mongolia’s Oyu Tolgoi copper mine ($500 million). The copper from this open-pit and underground mine competes with excavations in Arizona, Utah, New Mexico, Nevada, and Montana just as global refined copper production is expected to exceed demand by more than 390,000 metric tons this year.

Papua New Guinea’s Liquid Natural Gas Project ($3 billion). Despite regulatory challenges faced by U.S. producers of liquid natural gas, Ex–Im approved $3 billion in financing for development of gas fields, on-shore and off-shore pipelines extending 400 miles, a gas liquefaction plant, and marine export facilities.

Air India ($3.4 billion). The financing will guarantee the purchase of 27 Boeing aircraft intended for international service, including U.S. destinations. According to the Air Line Pilots Association, Air India will enjoy rates and terms that are not available to U.S. airlines, giving it a cost advantage of about $2 million per airplane. Surplus seat capacity resulting from Ex–Im airline subsidies—totaling about $50 billion between 2005 and 2011—has resulted in the loss of approximately 7,500 U.S. jobs

Of course, there are also all the businesses that could have been but never materialized, the businesses that were crowded out of the capital market because lenders prefer lending to Ex-Im beneficiaries, and all the consumers who face higher prices everyday either when buying plane tickets or exporting products via airline.

It’s easy for Ex-Im defenders to point to the visible beneficiaries of government largess; indeed, it would be remarkable if Ex-Im did not report some “job creation” or “export success.” It is harder, but in many ways more important, that we consider the invisible costs of political privilege, like market distortions, resource misallocation, job losses, and destroyed potential.