President Trump is all about “America First” and better trade deals. But there are many government programs that subsidizes foreign companies. As you know, one of the leading programs of that sort is the Export-Import Bank, which free-market Republicans in Congress have shut down for a while and limited to deals below $10 million. Trump’s next step ought to be to kill the Ex-Im Bank once and for all.
As a reminder, here are some of the top foreign countries being subsidized by Ex-Im and the cumulative amount firms in these countries have received:
- Mexico ($8 billion, with $1.6 billion of that in FY 2014 alone)
- Saudi Arabia ($6 billion, with $218 million of that in FY 2014 alone)
- China ($5 billion, with $2.5 billion of that in FY 2014 alone)
Drilling down on this issue, Ex-Im has been extending cheap loans backed by American workers to companies like Ryanair ($4 billion in guarantee loans over ten years) and Emirates Airlines ($3.9 billion over ten years) giving them a large competitive advantage over U.S. domestic airlines like Delta and United. It subsidized the state-owned Mexican oil company PEMEX ($9.7 billion over ten years).
Under Ex-Im, American taxpayers are backing generous loans for large, wealthy, and often state-owned foreign companies which have no problems accessing capital — but that are subsidized nonetheless. Here is the list of the top-ten state-owned companies:
And here are the top foreign airlines and buyers from the oil industry benefiting from Ex-Im.
Pro–Ex-Im advocates claim that this is helping U.S. companies sell their goods and services abroad. But I assume that the president will be able to see through the rhetoric, considering the names of the top beneficiaries abroad and the top sellers at home (40 percent of Ex-Im deals benefit our No. 1 exporter, Boeing, and ten companies benefit from 65 percent of Ex-Im deals). Don’t get me wrong, these companies abroad and at home love it when the government subsidizes their loans and reduces their borrowing costs. But it is naïve to think that most of these deals wouldn’t be going on without Ex-Im. In fact, several of the foreign beneficiaries have come out to say that they would be fine without Ex-Im, like Emirates Air has here.
But again, what about the American companies which have to compete with these subsidized giants? This is not a theoretical question. All American airlines end up having to compete with foreign airlines receiving an Ex-Im subsidy. For instance, when Ex-Im grants a cheap loan to Emirates Air, it gives the company a competitive edge over American companies, such as Delta Airlines, which don’t get the same assistance. At what cost? Delta estimated that the handout to foreign airlines costs the U.S. airline industry 7,500 jobs.
That number doesn’t include the millions of exporters that export American goods and services without a handout from the government — less than 2 percent of exports are backed by Ex-Im, showing the abundant supply of private export financing — and the many American workers in who directly or indirectly compete with Ex-Im subsidized workers. Incidentally, American exports will not and have not collapse absent Ex-Im. That’s because unlike what Ex-Im supporters like to claim, export subsidies do not “create” or “support” jobs. What they do instead is redistribute jobs from unsubsidized firms to subsidized ones. What’s the fairness in that?
I hope that the president won’t fall for the false claim that these export subsidies are necessary to offset foreign countries’ trade policies. The Bank’s own data show that the vast majority of its activities are justified for purposes other than countering the effect of foreign subsidies. But the truth is that even if 100 percent of the Bank activities were justified as a way to countervail subsidies from foreign governments, it wouldn’t change the fact that these subsidies have been shown to reduce the overall economy of those doing the subsidizing. In other words, if countries are implementing policies that hurt their economy, we shouldn’t be emulating them.
Finally, the president is always talking about how he knows bad management or poor business ethics when he sees it. Well, he should take a look at the awful track record of the Ex-Im Bank. It’s an embarrassment. Over at the Daily Signal, Diane Katz reminds us:
Failures in bank management and monitoring are evident in dozens of cases of fraud and other wrongdoing. Based on a review of OIG data, The Heritage Foundation documented 124 investigations initiated between October 2007 and March 2014, as well as 792 separate claims involving more than a half-billion dollars.
There also have been 74 administrative actions since April 2009, in which bank officials were forced to act internally on the basis of investigations by the Office of Inspector General.
Back in August 2015, the Trump rightfully voiced the fact his concerns about Ex-Im:
“I don’t like it because I don’t think it’s necessary. It’s a one-way street also. It’s sort of a featherbedding for politicians and others, and a few companies. And these are companies that can do very well without it. So I don’t like it. I think it’s a lot of excess baggage. I think it’s unnecessary. And when you think about free enterprise it’s really not free enterprise. I’d be against it.
Trump was right. But I would add that if he is serious about fairness for American firms, a good place to start is to put an end — once and for all — to a program that subsidizes foreign firms (including the wealthiest woman in Australia, even though her company has plenty of access to capital and it competes unfairly with U.S. producers of iron ore) for the benefit of giant well-connected American companies. That’s what I call the government swamp and it’s time to drain it.
There is much more Ex-Im data, here.