The Corner

A Reminder: There’s No Economic Case for Ex-Im, and the ‘Win Win’ Policy Has Plenty of Losers

With the House considering whether or not to push the reauthorization of the Export-Import Bank, it’s worth recalling the empirical economic evidence on whether it’s a good idea for the American economy. The consistent answer: No.

You often hear that the bank makes money for taxpayers and helps exporters — it’s a win-win, nobody loses. But an excellent new policy analysis from Daniel Ikenson at the Cato Institute attempts to quantify just how many overlooked losers of this New Deal–era institution there are.

In short, it explains the deadweight losses imposed on every manufacturing industry across the states over the past seven years by Ex-Im subsidies and compares this calculation to the “benefits” touted by Ex-Im.

Ikenson finds that 189 of the 237 sub-manufacturing industries listed in the North American Industry Classification System (NAICS) incur a net cost of $2.8 billion per year (or $14.7 million per industry per year) as a direct consequence of Ex-Im subsidies. He writes:   

Among the specific sub-industry victims bearing the largest costs are U.S. manufacturers of motor vehicle bodies; computer storage devices; and, photographic and photocopying equipment. The 5 broad manufacturing industries incurring the greatest net costs are producers of electrical equipment, appliances and components; furniture; food; nonmetallic mineral products; and, chemicals. These 5 most ill-affected manufacturing industries account for 50 percent or more of manufacturing GDP in 7 U.S. states, and the 10 largest victims account for two thirds or more of manufacturing GDP in 22 states. (Emphasis mine)

Later in his analysis, Ikenson underscores the public-choice dynamics that make this policy stick:

In essence, Ex-Im policies amount to a net tax of $2.8 billion per year on 189 sub-industries ($15 million per industry) and a net subsidy of $4.2 billion per year to 47 sub-industries ($90 million per industry). For the winners, the downstream costs amount to less than one-third of the benefits received; for the losers, who outnumber the winners by a margin of 4-to-1, the costs are more than triple the benefits. One would be hard-pressed to find a better example of a policy that produces a few winners at the expense of a multitude of losers.

Ex-Im is not a free lunch, as its corporate beneficiaries would like you to believe, but rather a transfer of prosperity away from unsubsidized industries and towards politically connected, subsidized industries.

Republicans who are true to their free-market principles and oppose Ex-Im corporatism should think deeply about Ikenson’s report. If they truly believe that the political gamble that they are concocting has a higher chance of success than merely killing Ex-Im now, then they must state this on the record. They must promise that they will kill Ex-Im, either now or in the future, so that the huge costs imposed on unsubsidized industries will come to an end.

To the free-market faithful, I say: watch carefully. If these politicians who claim to share our values cannot even axe a tiny but destructive corporatist boondoggle like the Export-Import Bank, what hope can we have that they will have the courage to tackle the big problems? 


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