The Problem with the ‘Neocon’ Case for the Export-Import Bank

Reason’s Nick Gillespie points to an op-ed by Tom Donnelly of AEI arguing that there’s a justification for the Export-Import Bank you may not have heard of: its utility as a foreign-policy lever. He writes, noting that opponents argue that by fair-value accounting, Ex-Im costs taxpayers money:

This green eyeshade view of the bank misses a lot of [Ex-Im’s] political and strategic value. Take the case of Dubai, which, as Lane notes, got an Ex-Im-underwritten loan for $117 million to buy some Boeing 737s. Dubai and the rest of the United Arab Emirates aren’t exactly hurting for cash – they have the second largest economy in the Persian Gulf and have used their oil wealth to become a regional tourist attraction – and could certainly get private financing for the plane purchases. Indeed, Emirates Airlines has been growing like a weed and is a major international carrier; it’s even got its name on the plush new stadium of the London soccer powerhouse, Arsenal.

At the same time, the UAE is a critical U.S. ally in the struggle with al Qaeda and, more generally, in security matters throughout the Muslim world; in part because Dubai has become a regional entrepot, it is a critical “node” for a host of reasons. Just this spring, an al Qaeda cell was rounded up in Abu Dhabi. At the same time – and particularly as the Obama administration’s Middle East policy continues to unravel – the UAE, like the royal family next door in Saudi Arabia, sometimes hedges its bets.

In sum, even if the Emiratis get a “sweetheart deal” from Uncle Sugar’s Ex-Im Bank, it’s a baksheesh well spent. And it’s pretty likely that the UAE will fulfill the terms of the loan. This ain’t capitalism, it’s strategy.

Let’s leave aside the problem of whether this kind of suasion appears to be working (the fact that al-Qaeda cells get rounded up in Dubai and routinely funnel baksheesh of their own through there suggests it may not). Is it, in theory, worth having Ex-Im to support deals like this, at relatively low cost to the U.S. taxpayer? Quite possibly. The problem is that this isn’t representative of the kind of deals Ex-Im supports, or what almost all of its defenders say it does, or what it’s chartered to do.

Here’s how the charter of the Export-Import Bank begins (emphasis mine):

The objects and purposes of the Bank shall be to aid in financing and to facilitate exports of goods and services, imports, and the exchange of commodities and services between the United States or any of its territories or insular possessions and any foreign country or the agencies or nationals of any such country, and in so doing to contribute to the employment of United States workers. The Bank’s objective in authorizing loans, guarantees, insurance, and credits shall be to contribute to maintaining or increasing employment of United States workers.

Not much there about national defense. Now, the charter, which sets the bank’s policies, does contain a number of foreign-policy-related restrictions and priorities: no sales to Marxist-Leninist countries, for instance (the Democratic Republic of Afghanistan is still listed as a no-no), though this can be waived when the president says it’s in the national interest, as President Obama did in 2012 to authorize a deal with a Vietnamese telecom. And no sales of any military equipment are permitted at all — as Donnelly has lamented.

He wants Ex-Im restored to its original role, where it appears to have had a de facto focus on certain foreign-policy aims. Specifically, Donnelly wants it to become a financier of arms exports again, replacing the apparently dysfunctional Pentagon program that does finance U.S. arms exports. I’ll do him one better: It might make good sense to have an export-finance institution that’s intended to help reach deals with allies, prospective allies, or whatever. The non-negligible but relatively small fiscal and economic costs of such loans might be the right price to pay for the diplomatic benefits. (Tim Carney argues it would make more sense to just use cash transfers instead — he’s right that using loans rather than direct transfers is usually just a way to mask a budgetary cost, but there are justifications for credit rather than cash in the foreign-policy and export realm.)

But what Donnelly suggests used to be Ex-Im’s job isn’t what Ex-Im does today — it’s become more or less solely an economic-policy tool, not a foreign-policy one. As such, it should produce measurable net benefits for the U.S. economy, taking into account the fiscal and economic costs of corruption, misallocation of resources and credit, etc. It’s not clear that it does so, which is why I’m not sure Ex-Im really deserves to survive.

Now, a credit agency focused on supporting U.S. foreign policy and national-security interests may not be able to accomplish those interests in the short term at a reasonable cost, either. But at least those interests are a key task of the federal government. Supporting an extremely thin slice of export transactions at highly uncertain costs to the rest of the economy is not. As Donnelly points out, for a couple reasons, the Pentagon’s attempts at such financing schemes have failed (development-focused ones like OPIC are not super successful either). But it’s certainly possible such policies could work, and I don’t want our diplomats or national-security staffs to lack for tools of American power (what do you think I am, a Reason reader?!). But this is an argument for something fundamentally different from Ex-Im, and Donnelly doesn’t explain why we should save Ex-Im rather than design an institution specifically for the purposes he envisions.

Patrick Brennan — Patrick Brennan is a writer and policy analyst based in Washington, D.C. He was Director of Digital Content for Marco Rubio's presidential campaign, writing op-eds, policy content, and leading the ...

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