For months, we have been told that the full lending power of the Export-Import Bank must be restored because companies won’t have access to capital and sales of U.S. goods can’t happen without Ex-Im backing the loans. One example of the casualties that pro–Ex-Im advocates liked to use was the failed Boeing sale of a satellite to a Singapore startup called Kacific.
Well, as many of us predicted, if the sale was worth the risk, the companies involved would find a way to make it happen. And they did. SpaceNews reports:
Kacific has finalized its order for a high-throughput platform it will share with Sky Perfect JSAT of Japan. . . .
In the time since, Kacific raised $147 million in a late 2016 financing round, and signed 15 wholesale contracts for managed bandwidth collectively worth $434 million. That constituted enough to go forward with the satellite without the bank’s assistance, Kacific CEO Christian Patouraux told SpaceNews Feb. 20.
Diane Katz and I wrote about another Ex-Im misinformation campaign regarding another failed Boeing satellite sale back in 2015.
Economists understand why the few companies borrowing money with an Ex-Im guarantee would rather do that than use commercial loans like everyone else: With a government guarantee, they get very good terms and lower borrowing costs, which in turn gives them an edge over their competition. It also happens to shift the risk away from the buyer and the seller to U.S. taxpayers.
However, as we see in this case, the limitation of Ex-Im’s lending power doesn’t mean that these export deals can’t happen. I know Ex-Im advocates would like us to believe that, but it is simply not true. It just means that it may be more expensive and require more work from everyone. Also, not having access to a cheap loan doesn’t mean that these companies don’t have access to capital at all. Besides, you know what? Even before Ex-Im was shut down, 98 percent of U.S. exports took place without the support of Ex-Im–backed loans.
Finally, the fact that capital markets will not extend loans to all companies is not a bug — it is a feature of the capital markets. Not all loans and business ideas are worth financing at regular interest rates.
Now, I know that President Trump has made some comments about being open to helping the crony program out. However, there are some hopeful signs.
First, last Friday during his press conference at the Boeing plant in South Carolina, Trump talked about jobs but never mentioned the Ex-Im Bank.
Second, the Ex-Im Bank is among nine programs targeted for elimination under the White House Office of Management and Budget’s proposal circulated last week. As I noted a few weeks ago, those in charge of writing the budget proposals are serious free-market advocates and the new director of OMB, Mick Mulvaney, is a fierce opponent of all corporate welfare and of Ex-Im, in particular.
Finally, last week Representative Jim Jordan (R., Ohio), a Freedom Caucus member, reiterated his staunch opposition to the Bank and signaled he would fight the president on this issue if need be. Kevin Cirilli of Bloomberg reported Jordan’s comments:
I’ve fought against the Export-Import Bank for years and will continue to do so. Ex-Im is the definition of crony capitalism: big business getting a special deal from big government at the expenses of the American taxpayer. Additionally, as is often the case with government programs, the Ex-Im Bank is fraught with waste, fraud and abuse and should be shuttered.
We know that the way to make America great again and create jobs isn’t through crony programs artificially boosting the bottom lines of Boeing and GE. Even a pro–Ex-Im group, the American Action Forum, acknowledges that “for the economy as a whole, export financing [such as Ex-Im] merely redistributes jobs across the economy rather than create[ing] more overall jobs.” That’s exactly correct: Ex-Im boosts jobs in the subsidized industries at the expenses of jobs in non-subsidized ones.
The best way to create jobs and boost the economy is, of course, to implement fundamental tax reform. On the corporate side, it means lowering the tax rate and moving to full expensing and a territorial tax system. Deregulation would also go a long way toward boosting growth and creating jobs. Finally, draining the swamp by ending the unhealthy marriage between the government and big businesses would also be a step in the right direction. So let’s do it.