Since its inception, the Export-Import Bank of the United States (founded 1934) has been a bank that has served a very specific purpose: to subsidize the export of American-made goods by providing cheap credit to companies abroad looking to purchase our products.
The question of whether the bank is legitimately serving any purpose is another. Today, the Export-Import Bank mainly acts as an escrow fund for politically connected American businesses like Boeing or General Electric. They would be happy to do business in foreign countries but they are happy to receive low-interest loans from potential buyers. The Export-Import Bank sometimes spends American taxpayer money to support foreign government-run Monopolies.
Yet, this mission is clear. It’s right there in Executive Order 6581, which President Franklin Delano Roosevelt signed in 1934 to authorize “a banking corporation…with power to aid in financing and to facilitate exports and imports and the exchange of commodities between the United States and other Nations.” It is also clear that the bank’s mission statement currently states it has the goal of supporting American jobs and facilitating exports of U.S. products and services.
Now, quietly, the Ex-Im Bank is taking on a new—and entirely domestic—project.
The Ex-Im Bank board approved a “Make More in America” initiative at a meeting last Wednesday. This press release, which announces the program’s existence, is full of doublespeak and crony capitalist doublespeak. It doesn’t give any details about the program or how it will work. Retajo Reyes, president of the bank and chairwoman of the board, stated that the program would “create new funding opportunities that stimulate manufacturing in America,” support American jobs, boost America’s competitiveness with other countries, and so forth.
The Ex-Im Bank’s latest developments are part of a larger federal effort to support American manufacturing. It began under President Donald Trump. As part of its June supply chain recommendations, the White House created a “domestic finance program” at Ex-Im Bank. Just days before Christmas, Ex-Im Bank published a vague notice in Federal Register detailing its plans for the implementation of the program.
There is not much information about the program’s purpose, who might benefit, and how it will end up. Ex-Im Bank stated that its new program would “immediately provide the agency with medium- and longer-term loans as well as loan guarantees for import-oriented domestic manufacturing projects.”
There are many interpretations of what constitutes “export-oriented”. The details filled in the Federal Register indicate loans could be available to companies that export as little as 25 percent of their product, though the financing must have “reasoned and articulated” nexus to exports of some kind—and the Ex-Im Bank will decide what that means on a case-by-case basis.
This is not a problem, but a feature. Many American manufacturers might be able to qualify, but most companies don’t have the time and resources to appeal to the Ex-Im Bank for loans—the beneficiaries will be those that do.
“This is worse than mission creep,” says Sen. Pat Toomey (R–Pa.Chair of the Senate Banking Committee.
Toomey asked Ex-Im Bank a number of questions in March to get more information on the new initiative. In a letter to Lewis dated March 23, the bank replied and did not give the impression that this program was being targeted at a genuine need.
Lewis acknowledged that it was difficult to find private financing to support a federal domestic loan program. He also said that the U.S. capital market is deep and liquid. Lewis says there is no shortage of “gaps” in America’s capital markets, and they are found among non-investment grade or unrated borrowers. Lewis explained that domestic applicants to the program will need to show “that the financing required is not available elsewhere in the private sector.”
Translation: Government will invest taxpayer funds in investments that are too risky for the private capital market.
How will the government choose which projects it funds? Toomey also requested information from the bank about what will be done to make sure that domestic transactions do not become influenced politically.
This is the Ex-Im Bank response. The Ex-Im Bank doesn’t appear have any protections. Lewis responded that Financing is available for qualifying applicants on the basis of agency practice and laws.
Translation: Anyone company can hire accountants, lawyers, and other professionals to help decode the bank’s policies, as well as enough schmooze decision makers, to get paid.
Toomey states, “There’s no reason taxpayers shouldn’t be supporting domestic financing.” He adds that we are in an advanced market economy with promising business having access to capital on favorable terms. This unprecedented program, which subverts the intent of Congress by bending Ex-Im’s charter interpretation to an extreme degree that renders it meaningless, is even worse.
Tellingly, one of the companies to already have discussions with the Ex-Im Bank, according to Lewis’ letter, is Suniva—the Georgia-based solar panel manufacturer that has helped pull the strings on Trump’s and Biden’s tariff policies despite not actually producing any solar panels in the U.S. in the past five years
Even if it is just as successful as all of Ex-Im Banks’ efforts to make American more attractive, it will not be able to do much.
Veronique, George Mason University economist: “The Ex-Im Bank’s record for underachievement it hard to overstate,” Veronique de Rugy says. ReasonLong-time critic and contributor to the Ex-Im Bank
Between 2014 and 2018, Ex-Im Bank effectively closed. The board was unable to approve small loans due to a lack of quorum. However, American exports actually increased between those years. From $2.3 trillion in 2014, the record $2.5 trillion was reached during the 2018 fiscal. The Ex-Im Bank has always been an important part of America’s international trade strategy. You’d think the exact opposite would have occurred during the four-year period when it was shut down.
But that didn’t stop Trump from reopening the Ex-Im Bank as part of his haphazard efforts to boost American manufacturing against China. It has not stopped Biden’s administration from using this bank in their vague efforts to boost protectionism. All that’s based on a Washington-centric bizarro world in which American manufacturing is struggling—it’s actually thriving—and where private capital markets are less well-equipped to make decisions about which projects get funding, despite a long track record of misguided corporate handouts.
De Rugy believes that there is no economic benefit to this bank’s domestic program. As it crowds out private investments, this program will likely prove to be net negative.
Worst yet, Ex-Im Bank’s mission creep transforms the institution, de Rugy states, into “an even larger corporate welfare nightmare than before it was.”