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Economy & Business

Ex-Im President Fred Hochberg Is Once Again Playing Fast and Loose with the Facts

The Hill’s Kevin Cirilli recently snagged an interview with Fred Hochberg, the current and possibly last president of the Export-Import Bank.

The noticeably peeved Hochberg would like taxpayers to ignore the huge chunk of Ex-Im financing that directly benefits Boeing, to forget about his 2012 speech at the International Aviation Club where he explicitly boasts of all of the privileges extended to Boeing, his numerous trips to Boeing facilities, or recent e-mails revealing that Ex-Im under Hochberg’s watch allowed Boeing to help write its own loan rules. He doesn’t work for “Boeing’s Bank”! Hochberg says. He’s just there to “promote jobs.”

As always, Hochberg tried to make the case that the sky will fall if the bank’s charter isn’t reauthorized. Considering that Ex-Im backs less than 2 percent of U.S. exports, it’s hard to take that claim seriously, and it’s even harder to do so when one looks at who the foreign buyers benefiting from Ex-Im’s cheap financing areFifty percent of the biggest foreign deals benefit airlines, which often are state-owned or are otherwise big enough to have reliable access to capital. Without Ex-Im financing, sure, these companies’ financing costs would go up. But that would simply put them on par with all the airlines — including every U.S. airline — who don’t get cheap loans or favorable terms.

But, as I suggested earlier, the most absurd line in the interview came when Hochberg said the following: 

Asked during an interview with The Hill whether the nickname [Boeing Bank] is unfair, Hochberg snapped, “Yes, of course it is.”

“Do we want those jobs to be in the state of Washington and South Carolina and the 15,000 companies in the supply chain of Boeing?” the Ex-Im president asked. “Or do we want them to be in Toulouse and Hamburg and the Airbus supply chain overseas? That’s the choice we have. . . . We have an obligation not to turn our backs on American workers.”

Oh boy, where do I start?

First, yes, as he doesn’t really bother disputing, the Ex-Im Bank is Boeing’s Bank. The company is the beneficiary of 68 percent of the bank’s loan guarantees and 40 percent of its overall activities. In most years, it gets almost twice the amount in benefits small businesses do.

Next, if Hochberg and Ex-Im don’t want to “turn their backs on American workers” maybe they should stop destroying thousands of jobs in the U.S. airline industry by subsidizing foreign competitors. But Hochberg doesn’t work for Delta’s Bank or U.S. Airways’ Bank or JetBlue’s Bank — he works for the Export-Import Bank, which means that promoting the foreign consumption of Boeings is more important to him than avoiding damage on the 189 U.S. industries that are harmed by Ex-Im for various reasons.

When Hochberg suggests that export credit subsidies are creating jobs, his logic flies in the face of what government and academic economists have known for years — that these kinds of subsidies, at best, redistribute jobs away from unsubsidized industries and firms, toward subsidized industries and firms. Sometimes, this process can decrease the net number of domestic jobs. But because Ex-Im refuses to include such considerations in their analysis, Hochberg has no clue whether Ex-Im is in fact doing that. 

So his above statements aren’t very credible. But most incredible is the implication that all Boeing jobs and all the jobs in the Boeing supply chain would simply disappear without Ex-Im’s magic subsidies.

Last year only 10 percent of Boeing plane purchases benefited from Ex-Im backing. If we assume that the foreign airlines who bought the Boeings wouldn’t have bought them without the guarantee, if we assume that lenders would never extend plane loans without an Ex-Im guarantee, and if we assume that Boeing is so strapped for cash that it has no room to absorb any reduction in sales, then maybe we’d see, say, 10 percent of the jobs disappear — not all the jobs. Ninety percent of Boeing planes would still have to be built. That requires jobs! Come on. 

Thankfully, these “ifs” are not likely. For most airlines, the decision to buy a plane is hardly driven exclusively by the existence of an export subsidies. Further, Ex-Im Bank designates only 16.4 percent of its financing as necessary to address a lack of private capital, and only 32.7 percent is categorized as offsetting foreign subsidies.

Here is one telling example, from my paper with the Heritage Foundation’s Diane Katz. It retells the case of Emirates, the state-owned airline of the UAE and Ex-Im’s biggest foreign beneficiary. 

Consider the case of Air Emirates, for instance. In June 2012, Emirates bought two Boeing 777s using Ex-Im Bank financing, and four Airbus A380s using private financing. Obviously, the state-controlled airline could afford to buy planes without subsidies, and subsidies are not the only factor in the carrier’s choice of aircraft. This is consistent with the results of a study by the Government Accountability Office that found 85 percent of Boeing and Airbus large-aircraft deliveries were not subsidized by export-credit agencies.

This example, which could be told about all kinds of purchases of U.S. goods and services backed by Ex-Im, shows that the foreign beneficiaries are plenty capable of borrowing money on their own. In the race between Airbus and Boeing, the export subsidy certainly doesn’t seem to be the deciding factor. How else could we explain the decision by Emirates to buy Airbus planes without export subsidies? 

Nice try, Mr. Hochberg! We all know that you still work for Boeing’s Bank.

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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