Xing-Out The Subsidies

By: kekepana.com

Sallie James wants to abolish the Export-Import Bank. Probably not a bad goal. ExIm hasn’t had anything to do with imports in decades and its policies certainly smack of industrial policy (it isn’t known as “Boeing’s bank” for nothing). But there is one role that ExIm can still fill – that of counter-subsidy agency.

James acknowledges that – though her headline writer didn’t catch it. Her piece ended up being called “Time To X Out The Ex-Im Bank“, though that is not precisely her conclusion.

How much could you get for this bank?

If Congress wants to help U.S. exporters compete with foreign firms backed by official export subsidies, it could accomplish that task with a far smaller footprint than the Ex-Im Bank currently creates. The first step in narrowing the bank’s scope should be to immediately restrict Ex-Im financing to only those cases in which—and only to the extent to which—an American exporter faces verifiable subsidized competition abroad. The next step should be to terminate the bank as soon as possible. Such corporate welfare programs have no rightful place on the U.S. trade policy agenda. In the meantime, negotiations to eliminate export subsidies worldwide should be vigorously pursued …

She advocates eliminating ExIm only when its counter-subsidy role is no longer needed. That is going to take some doing, but she is right that we can start hacking off the other bits of ExIm without delay. The problem is that our competitors have not become enlightened enough to get rid of their export finance subsidies. And, until they do, we are at a disadvantage when trying to compete with officially supported exports from other countries. James asks ExIm to produce evidence of foreign credit subsidies, but – while some stats are available from the OECD – this is not the sort of thing that other governments like to keep us informed about.

She asks that ExIm only finance exports for which competing companies verifiably receive support from their governments. That is a pretty tough bar to meet, since our competitors are not likely to notify us of who they are supporting in which competitions. U.S. companies often suspect official interference in favor of their competitors, but proving it and measuring the value of those subsidies during the competition is probably an impossible ask. When I was a U.S. commercial officer, I often worked with American companies that suspected they were up against subsidized competitors – but the extent of the subsidy was unknowable until the competition was over, if then. Often the U.S. firm was approached by a foreign procurement official with gentle advice that they needed to “sweeten” their bid because their competitors were doing so. We rarely knew for certain if that was true or just a negotiating ploy by the foreign buyer.

By all means, cut ExIm back to what has become its essential role of countervailing lender or guarantor – and use it as a negotiating chip to convince others to stop predatory export lending. But don’t expect to achieve that nirvana anytime soon.