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Capital Matters

Don’t Be Fooled: The Export-Import Bank Is in the Big-Business Business

Ex-Im Bank president Fred Hochberg (Brendan Smialowski/AFP/Getty)

I am sure many of you are thinking, “Here she goes again with another post about the Export-Import Bank.” You wouldn’t be wrong. That said, when you read stuff by me about this particular agency, you should know that it applies to many other agencies as well. I can’t monitor them all as I do the Ex-Im, and yet, I can tell you that each time I look at other programs, the same patterns of cronyism emerge — such as the fact that well-connected companies are the main beneficiaries of the program though they don’t need it, and that the benefits create serious economic distortions and are profoundly unfair.

With that in mind, here is something else that all of these programs do: They argue that they are mostly focused on small businesses. I get it, people love small businesses, so it is a good talking point. But all too often these claims are overstated or even frankly misleading. What follows is an example of the latter.

By now Ex-Im’s devotion to large corporations that do not need government support is well-established. On the foreign side, a vast majority of Ex-Im clients are large companies in higher-income countries with plenty of access to capital. On the domestic side, Ex-Im is committed to propping up large manufacturers and is especially devoted to Boeing

Notwithstanding the cronyism that underlies the bank’s business model, the agency and its supporters in Congress like to claim that Ex-Im is in the service of small businesses by pointing out that 90 percent of the transactions benefit them. Yet looking at the money, one can easily see that some 20 percent of the financing actually benefits small businesses. In fact, as Politico reported a few years back, “but not enough small businesses actually need loans for the bank to make more, even if it tried.”

These actual facts don’t stop the bank from claiming that it is all about small businesses. Adding insult to injury, this time around the agency has used the cover of the COVID-19 pandemic to provide greater handouts to large firms, even as it claims that these activities primarily benefit small businesses.

In March of last year, as the pandemic was unfolding, Ex-Im introduced four purportedly “temporary” measures that it claimed would support the U.S. economy. I wrote about these measures when they were put in place, noting that the bank’s old clients appeared to have a hand in their design. First, at least two of these measures seemed explicitly designed for Boeing.  Moreover, for one facility — the Supply Chain Financing Guarantee Program — Ex-Im eliminated the program’s target for 50 percent of suppliers to be small businesses. In addition, for both this facility and Ex-Im’s Working Capital Guarantee Program, the bank raised the amount of its guarantee from 90 percent to 95 percent, shifting more risk away from commercial banks and toward the U.S. taxpayer.

As the saying goes, there is nothing as permanent as a temporary government program. So no one should be surprised that, last month, Ex-Im’s board of directors voted to renew the four programs — which it had touted last year as “temporary relief measures” — for another year. Here is how the press release reads:

Over the past year, U.S. small businesses benefited significantly from the relief measures. Since April 2020, the measures have resulted in $1 billion in EXIM working capital guarantee and supply-chain financing guarantee authorizations. In fiscal year (FY) 2021 to date, EXIM’s working capital guarantees for minority and women-owned businesses have risen to a total of $31.5 million—a 50 percent increase over the previous period in FY 2020.

This framing would lead a casual reader to assume that small businesses received a billion dollars in benefits from Ex-Im’s pandemic-related measures. A bit of digging, however, suggests otherwise. According to another Ex-Im press release, $510 million of Ex-Im’s claimed billion dollars in pandemic relief went to just one transaction: Boeing’s purchase of aircraft engines from an affiliate of the General Electric Corporation. Thus, in one fell swoop, half of Ex-Im’s overall pandemic-related support went to the bank’s two most-beloved corporations in a favored sector. Another $450 million, across two transactions, went to U.S. Steel. Freeport LNG, which is, as I mentioned last week, a large exporter of liquefied natural gas, received $50 million. Although the amount to Freeport was small compared to the giveaways to Boeing, GE, and U.S. Steel, the loan made big waves last week when the Financial Times reported how the bank used the loan to buy the U.S. gas industry’s acquiescence to an Ex-Im gas project in Mozambique. (My post about can be read here.)  

In short, in an economy as large and diverse as that of the U.S., the bulk of Ex-Im Bank pandemic-related responses went to help large corporations, including Ex-Im Bank mainstays Boeing and GE, along with Big Steel and a large energy producer. If, as the Ex-Im press release implies, small businesses were the key beneficiaries of these relief measures, why did Ex-Im eliminate the 50 percent small-business target for the Supply Chain Financing Guarantee? 

The board approved the renewal of these measures in an open meeting in April that Mercatus was able to listen to. I was struck by a few things. First, the waiver of small-business involvement in the Supply Chain Financing Guarantee Program is going to be continued, which means that large corporations will continue to be the primary beneficiaries of the Ex-Im’s COVID-19 response. Second, it seems that the two facilities explicitly designed for Boeing — the Bridge/Backstop Financing Program and the Pre-Delivery/Pre-Export Financing Program — are being renewed even though they were not used in the past year, but will sit in reserve for whenever Boeing is ready to use them. 

What I found most extraordinary, however, is a point made by an Ex-Im official on the call. He acknowledged that circumstances have changed over the past year — translation: Pandemic measures are not necessary anymore — but then he added that the COVID-19 measures were designed for specific needs. This point is dumbfounding since it is an admission that Ex-Im intended these COVID-19 relief measures not for the broad economy — and certainly not for small businesses — but really for some hand-picked corporations.  

The press release goes on to tout the benefits of the facilities to minority and women-owned businesses, noting that such businesses received $31.5 million in support so far this year. Compare that with the $1 billion that benefited large corporations, and it’s barely a rounding error. As I have pointed out elsewhere, the bank’s support for small businesses actually declined in dollar terms between 2019 and 2020, in the midst of a pandemic that pounded small businesses.

The bottom line is that as always Ex-Im is misleading Congress and the American people by claiming to be in the small business business when every step of the way, the agency takes measures to demonstrate its constant and growing commitment to large firms.

Now going back full-circle, I will ask you this: What is the probability misleading actions like the one above only happens at Ex-Im?

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