Cronyism, and the Ex-Im Bank
12:00 AM, Aug 30, 2014 • By IRWIN M. STELZER
Free trade is a huge benefit if you are a Walmart shopper. All those microwave ovens, lamps, sneakers, and other stuff available for a relative pittance. It’s a tragedy if you are a domestic manufacturer or worker attempting to compete with cheap labor and subsidized Chinese manufacturers pouring those goods onto supermarket shelves. Consumers are dispersed and unaware of their interest in free trade; workers and manufacturers know their interest in protection. So freer trade is always a difficult political proposition.
More so now than ever here in the U.S. For one thing, President Obama has no interest in jeopardizing the electoral chances of congressmen dependent on trade union support by trying to push through the stalled trade deals now languishing somewhere in the administration’s bureaucracy. For another, a battle has flared within the Republican party over possible renewal of the Export-Import Bank, an institution established in 1934 by President Franklin Roosevelt “to assist in financing the export of U.S. goods and services” by providing credits exporters need to tide over the time between shipment and receipt of payment, and by guaranteeing the credit of foreign buyers. An indication of how much politics has changed in America is the fact that until the emergence of the Tea Party, the Bank’s authorization was renewed 16 consecutive times with almost no controversy.
After all, what could be more straight-forward and a worthier cause for any politician to support than helping American exporters to win markets and create jobs, some 200,000 last year by the Bank’s undoubtedly exaggerated reckoning? If you want to know, just ask Jeb Hensarling, chairman of the House Financial Services Committee which has jurisdiction in the area, and Eric Cantor, the former majority leader of House Republicans. Hensarling and Tea Party Republicans are on a campaign to end “crony capitalism,” the you-scratch-my-back-and-I-will-scratch-yours relationship between big business and big government that they believe has short-changed Main Street in order to pour tax-payer money into the relief of Wall Street bankers. “If you’re a politically connected bank or company that benefits from Ex-Im,” Hensarling commented at a hearing, “…you would like it to continue…. It’s a sweetheart deal for you. Taxpayers shoulder the risk, you get the reward.”
Cantor disagreed and supported re-authorization -- and for that among other reasons became the victim of the political upset of the year, losing his Republican primary to an anti-reauthorization Tea Partier, one David Brat, a previously unknown economics professor. Cantor is now gone from the leadership and, indeed, the Congress. The Tea Party message got through. Cantor’s successor as majority leader, Kevin McCarthy, once supported renewal but now opposes it and promises not to bring the issue to the floor of the House, where a combination of Democrats and some Republicans would very likely pass the necessary reauthorization.
The economics are even more complicated than the politics. The Bank’s largest beneficiary of Ex-Im financing is Boeing, which scooped up about 25 percent of Ex-Im’s guarantees last year to back sales in thirty countries. If the Bank is no more, the aircraft manufacturer will bear the higher cost of covering its own trade risks. That will force Boeing to increase the price it charges for its aircraft, including that of its 777-300ER, which carries a list price of $320 million, although Emirates Air, which ordered 120 of these planes, is undoubtedly getting a discount. And is benefitting from the significant savings that Ex-Im financing provides. Were the Bank to close, Boeing would be the victim of an act of unilateral disarmament in its trade war with Airbus, the European consortium that receives financing support from export credit agencies funded by Britain, France, and Germany. The tally in that war: Ex-Im supported delivery of 789 large Boeing commercial aircraft between 2008 and 2013, while the European counterpart supported delivery of 821 Airbus planes. Little wonder that on the day Ex-Im supporter Cantor lost to Brat, Boeing’s shares plunged a full 3 percent.
As if this tale were not complicated enough:
· American conservatives, normally Francophobes, are joining forces with French Airbus supporters to oppose continued life for what the Europeans call “the Boeing Bank” and conservatives see as a function better performed by the private sector;
· Liberal Democrats, who despise Boeing for moving production of the 787-10 Dreamliner from the pro-union state of Washington to the anti-union state of South Carolina, are supporting the “Boeing Bank” because it creates jobs;
· Enter Delta Airlines. That highly regarded carrier competes on international routes with some of Boeing’s customers who receive financing subsidies from the Ex-Im bank, lowering the price these competitors pay for aircraft and the fares they must charge.
Delta contends that Ex-Im subsidies allowed Air India to flood the New York-Mumbai route with extra capacity and crowd out competitors. Delta says it was forced to stop flying that route in October of 2008 due to the Bank’s loan guarantees to Air India, enabling its competitors to pour capacity onto that route. And other loan guarantees to American manufacturers -- there were 3,000 last year -- enable them to keep down the cost of steel mills they build in China and refrigerator plants in Mexico, points out Timothy Carney in the Washington Examiner. One result is that American steel producers have persuaded our trade overseers to levy tariffs on China’s low-priced steel, perhaps produced from the very Chinese plants the construction of which was subsidized by Ex-Im financing.
So life has become more complicated for congressmen opposed to crony capitalism. They can oppose crony Boeing’s efforts to have Ex-Im re-authorized, or oppose crony Delta’s efforts to eliminate or pare down the “Boeing Bank.” Both cronies have large teams of lobbyists and supporters in the White House. In a perfect world, the edge goes to Delta. But this is not a perfect world, as the export credits to Airbus and others demonstrate.
The resulting policy muddle might best be solved by looking to last week’s durable goods report, and to an old standby. In July, Boeing booked orders for a record 324 planes, orders that will provide thousands of jobs a few years from now when production begins. America needs jobs growth, and the jobs-in-hand provided by Boeing have to be given greater weight than the jobs-in-the-bush that might emerge if critics are right and subsidies to Boeing divert resources from other, smaller businesses. And that old standby Adam Smith points out that “The French have been particularly forward to favor their own manufactures….Revenge in this case naturally dictates retaliation…”
So it might be wise for Congress temporarily to renew the Bank until after the November elections, and then reach a more considered decision when electoral passions cool for the brief period before the start of the 2016 presidential and congressional election campaigns.
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