Politics & Policy

Free Trade Isn’t Free with the Ex-Im Bank Attached

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Much of the last-minute debate over giving President Obama fast-track trade authority focused on the possibility that lawmakers would extend the charter of the Export-Import Bank of the United States in return for votes to pass fast-track legislation.

Whether or not these deals were being cut, it is odd that at the same time that many people are pushing for “free” trade, they are also promoting a program that makes trade much more expensive. At the heart of the debate is this question: If free trade is such a good deal, why do we have to spend so much money on it?

The answer to this is that we don’t. Free trade is a good deal; the United States should lead the way by repealing its trade restrictions so that American consumers can benefit from low-cost imports. Most other countries would eventually see the benefits and follow suit.

EDITORIAL: Pull the Plug on the Export-Import Bank

Of course, special interests such as unions and exporters will do their best to make sure that doesn’t happen. So instead of giving American consumers the benefit of low-cost imports, we make them cough up their own money to subsidize low-cost imports for foreign citizens through the Export-Import Bank.

How much does the Export-Import Bank cost? A study by the Congressional Budget Office suggests that reauthorizing the bank would cost as much a $2 billion through 2024. But that is only the beginning of the bank’s cost to the American economy.

While companies such as Boeing and General Electric might benefit from the low-cost government services provided by the bank, what about the companies that produce 98 percent of American exports that don’t get subsidies? Workers in those industries might get paid less. They could lose their jobs, to either domestic or foreign competitors. One example: Delta Airlines estimates that the Export-Import Bank’s subsidies cost the American airline industry up to 7,500 jobs and $684 million each year.

RELATED: Will Obama Follow the Law and Liquidate the Export-Import Bank?

The long-term costs of the bank might be even greater. Many potential new entrants into industries stay away because they can’t compete with the inefficient, subsidized incumbents. We can’t calculate the harm that this loss of innovation causes the American economy, but the harm is real nonetheless.

One interesting aspect of the battle over reauthorizing the Export-Import Bank is the leadership role Texas Republicans are playing in opposition. Representative Jeb Hensarling is the leading opponent in the House, while Senators Ted Cruz and John Cornyn have also come out against it. Additionally, former Texas governor Rick Perry recently came out in opposition to the bank.

Why are these Texans steadfast in their opposition to the bank? Most likely because they have firsthand experience with the alternative approach to growing the economy: the Texas Model.

RELATED: The Ex-Im Bank Is a Waste of Money

The Texas Model is simple: lower taxes, less regulation, fewer frivolous lawsuits, and reduced reliance on the federal government.

It’s also very successful. Since 2009, Texas has added 1.1 million jobs, far more than any other state. Its unemployment rate has been at or below the national average for 100 consecutive months. And its share of the population employed is 62 percent, well above the national average of 59.3 percent. Texas has also become the nation’s top exporting state. Its $289 billion in exports last year accounted for more than 17 percent of the U.S. total.

Texas is proof that exporters can do just fine without subsidies.

This has been accomplished even though Texas ranked 49th in per capita economic-development spending from 2007 to 2014, according to a report by the Texas Public Policy Foundation.

Texas doesn’t need subsidies to attract exporters — they come here because the Texas Model makes it a good place to earn a profit. Texas is proof that exporters can do just fine without subsidies. The most important takeaway here is that the Texas Model is not unique to Texas; it’s just one state’s version of the model of limited government provided by the Founders in the U.S. Constitution.

For those worried about the economic impact of ending the Export-Import Bank, the solution is simple: Return to our basic constitutional model of government. Reduce the U.S. corporate tax rate, eliminate other corporate subsidies, abolish U.S. tariffs and import quotas, and rein in the Environmental Protection Agency.

Allowing the bank’s charter to expire will go a long way toward turning today’s costly international trade into genuinely free trade.

— Bill Peacock is the vice president for research and director for the Center for Economic Freedom at the Texas Public Policy Foundation, a nonprofit, free-market research institute based in Austin. You can follow him at @BillPeacock3.

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