As policy makers consider these services, let's be clear: Ex-Im Bank services are not subsidies. The Ex-Im Bank requires that exporters and purchasers pay fees and interest to cover its services, helping the Ex-Im Bank operate as a self-sustaining government agency at no cost to the taxpayer.
The 2014 Congressional Budget Office report, which is often cited for the subsidy claim, actually illustrates that the bank would add $14 billion to the U.S. Treasury over the next 10 years (after paying its own expenses and contributing to its loan-loss reserve fund) based on the accounting methodology that the U.S. Congress requires the Ex-Im Bank to use. Sure, you could come up with different numbers if you change the accounting methodology (and make lots of assumptions about risk and costs that don't comport to the reality of Ex-Im's operations), but until Congress modifies the required accounting methodology, such estimates are only hypotheticals.
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The lack of private-sector credit for the transactions that Ex-Im provides is not, as sometimes claimed, proof that Ex-Im support is a subsidy. Looking at the reality of Ex-Im's portfolio, it has a track record of funding generally viable projects, not providing special subsidies. The problem lies not with the Ex-Im Bank, but with domestic lending rules and market failures that prevent access to competitive credit options for a wide range of U.S. exporters.
For instance, private lenders are prohibited from accepting export receivables as collateral for lending — as they would with domestic receivables. This restriction limits credit options and creates a market failure, particularly for small exporters. Private lenders are sometimes reluctant to engage in the due diligence required for reviewing foreign transactions or for engaging with foreign banks, or they charge unattractively high rates to do so because they have not developed specialized knowledge of emerging markets or niche products. This is a failure in private capital markets. Private lenders often avoid longer-term financing, particularly in emerging markets, to bolster their balance sheets. In all of these circumstances, private lenders work with Ex-Im Bank to offer better options to their customers.
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For large businesses, market failures occur when foreign Export Credit Agencies (ECAs) drive down the global market price. The best way to explain this is to consider how market prices are determined. Currently, more than 60 foreign ECAs provide billions in export credit financing to their domestic companies. In doing so, foreign firms compete at a new market price, where the loans and guarantees to their buyers are on better terms that those for U.S. firms. This tips the scale in their favor, straining U.S. firms. The Ex-Im Bank simply tips the scale back and levels the playing field for U.S. business. This financing deals with the market and is not a subsidy.
Also lost in this discussion is the fact that the United States has led for decades—and still leads today—in efforts to discipline and regulate official export credit globally. Largely because of U.S. leadership over several decades, most industrialized countries have generally agreed to uniform standards and fair practices for export credit agency lending to limit distortion and subsidies. In 2012, the United States launched strong efforts with developed and key developing countries to institute even more widespread disciplines. Unfortunately, many of the United States' trading partners continue providing unregulated—and in some cases subsidized—financing. Removing the Ex-Im Bank in the face of such foreign government activity is not good fiscal governance. It is bad economic policy and bad manufacturing policy.
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Tipping the scale toward a level playing field has never been more important. Small businesses are vital to growing the economy. As they expand, they can hire more workers and grow revenues in hopes to one day have the same legal and financial expertise as large global businesses. The broader economic benefits of growth are self-evident. On the other hand, large U.S. businesses must compete with foreign companies that often receive government support far outweighing the services that the Ex-Im Bank provides.
When we cut through the rhetoric and look at how the Ex-Im Bank operates, both in the domestic and international contexts, it is plain to see that these services are not subsidies, but rather vital export promotion services that help grow jobs and manufacturing throughout America.