Which buyers benefit the most from the Export-Import Bank?

Veronique de Rugy and Diane Katz have the scoop:

…the primary beneficiaries on the buyer side of the transactions are also very large firms.  Among the top 10 buyers, 5 are state-controlled and rake in millions of dollars from their own governments in addition to Ex-Im Bank subsidies.

Five of the top ten buyers are related to the production of oil or natural gas.  The other five top buyers are airlines.  Number one on the list is…can you guess it?  Pemex.  Clearly a company worthy of further subsidy, and from the American government too.

On the sell side, 80 percent of Ex-Im financing goes to support the exports of large American firms, note that the number one firm — Boeing — already receives plenty of implicit subsidy from DOD contracts.  Is there no limit to strategic trade policy?  And to the extent carbon emissions are important, how is the Ex-Im Bank doing on that scorecard?

Comments

Who doesn't know the ExIm bank is an arbitrage subsidy for big companies? (And the bank is modestly profitable.) In the long run it would be best to end it but as Paul Krugman notes, we are not short of money to invest.

There are bigger fish to fry. Like the Iran deal, ending ethanol mandates, opening oil exports, local licensing requirements, or even Keystone Pipeline.

So if a smallish thing like ExIm Bank that everyone admits is pretty dumb is politically untouchable under both parties, what are the chances that Congress will address these bigger fish?

Reminds me of GSE reform. Did you know that ~80% of newly originated mortgages in the U.S. are backed by Fannie, Freddie, the FHA, or VA?

And the last 20% end up on the fed's balance sheet via QE XII.

The debate about the Ex-IM bank seems to me to be just a political ploy to try to slap Obama with a defeat. If we get a Republican in the White house in a couple of years I'd expect the bank to be, quietly, renewed.

He's got enough defeats already that no one needs to make them up.

Obama and his party believes that its not always about the money. Sometimes you need to look beyond profit, and uphold principles.

But then they hit the Ex-Im bank and suddenly "hey, its profitable!" why are some of those (free market) Republicans now standing on principle?

Weird.

Personally getting rid of Ex-Im Bank would be more victory for leftism - no corporate welfare and for libertarians - no state subsidies.

Unless, we change our mind and admit lefties like corporate welfare.

It's all stuff whose value is huge and yet intensely dependent on government foreign and military policy. Ex-Im allows some form of Coasean bargaining over the stake - if the USG loans Pemex $lots to invest in fields in the Gulf of Mexico, it can't then turn around and damage the value of those investments in some way without eating those losses.

This is naturally dodgy stuff hammered out in smoke-filled rooms, so Ex-Im diverts some of those fantastic slush funds towards legitimizing itself, by flinging breadcrumbs at a vast number of small American firms.

Gotta say, this seems like a much better way to internalize the costs of potential government misbehaviour than ISDS. Unexpected stuff happens all the time and governments would want to revise their priorities quickly. Internalization of incentives trumps impossible attempts at complete contracting.

Can you expand on this and explain it like I'm stupid?

P.S. I am in fact stupid.

I had a trade law prof a few years back who had been a political appointee at Commerce. He was pretty open - even boastful - about selling Boeings as one of the main aspects of his job.

That's bad, why?

Because the government is not the sales arm of a particular company.

Is it really too much to ask for a neutral government? You want them putting their thumbs on the scales for certain people?

So, I'm JAL or Korean Air looking at an A350 vs. an 787. The US won't provide financing but the French Im/Ex bank is happy to provide financing. Doesn't that push jobs from the US to France?

I'm Pemex looking at buying drilling equipment. I can buy it from Baker Hughes in the US or from Schulmberger's French subsidiary. No Im/Ex bank but the French Im/Ex bank is happy to arrange financing. Doesn't that push jobs from the US to France?

How is it good to have US exporters playing on an un-level field? Ideally no county would have an Ex/Im bank - but until that's the case.

So, I'm United Airlines looking at the number of flights on the LA-Tokyo route. JAL is undercutting me on capital costs because the U.S. government is giving my competition cheap financing for airliners. I cut the number of flights. Doesn't that push jobs from the U.S. to Japan?

This is about as useful as a self-licking ice cream cone.

Wouldn't United still be in the same position if JAL was buying Airbuses?

Yes, but I'd rather French than U.S. taxpayers foot the bill for screwing over United.

Foot what bill? The bank makes a profit.

A bank that makes a profit (most years) by financing at below market rates is inevitably underpricing credit risk. The bank's customers are concentrated in cyclical industries, and the bank will need a bailout during the next recession.

But, if we foot the (currently non-existent bill) we at least benefit Boeing. It we don't then United still gets screwed and France gets all the former Boeing jobs.

I wouldn't bother trying to debate Cyrus. I get the feeling he works for United or one of the big three airlines.

Is this any different than states luring business from other states by giving tax concessions (not given to their own resident businesses) and payments for businesses to move.

I would be happy if any international trade deal limited state support between countries with respect to export assistance to trade between themselves and others, just as I would be happy to see limitations on money being given to corporations to relocate.

And in WA state (historically home of Boeing and still home to some of its largest factories) the governnor is pushing a carbon tax, while giving tax breaks to Boeing who makes plane (quite good ones to be fair) that contribute to global warming by burning fuel at high altitude...

Maybe the carbon tax is more about the tax than the carbon.

So we have a government program thats turning a profit and encouraging exports in an important US industry? Yeh, thats terrible. I

Ha, ha. Malraux.

Pemex. Clearly a company worthy of further subsidy, and from the American government too.

-That very sentence actually converted me to supporting the continuation of the Ex-Im Bank. Mexican credit markets are notoriously inefficient.

Sure, but *Pemex* doesn't have any trouble accessing domestic credit.

There have been many abuses of Ex-Im Financing. What I mean is that U.S.-based companies will create foreign "subsidiaries" to hold certain licenses or assets, get Ex-Im financing, and buy big pieces of equipment from large companies (e.g. Boeing). If nothing else, this abuse needs to be cracked down on.

I also think that Ex-Im is negative-sum game, similar to individual states making tax deals with large employers. U.S. should show some moral leadership and end its own Ex-Im bank.

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