Many Americans are seriously concerned with how much federal government spending is adding to the national debt. So it’s unusual to consider the Export-Import Bank, an agency that returns money to taxpayers. The bank announced this week that it made a profit of more than $1 billion over the past twelve months.
It’s rare for federal agencies to make a profit in the conventional sense. The Federal Reserve regularly sends profits to the Treasury, while the government-owned Fannie and Freddie have helped dampen the deficit—although taxpayers paid a heavy price for their takeover. Organizations like the Federal Communications Commission and the Bureau of Land Management often make money for the federal government through leasing or auctioning off public property like land and wireless spectrum. But the Ex-Im Bank churns regular profits just like any other bank by issuing loans and guarantees to businesses looking to export their products abroad.
The fact that the bank does operate so much like a private business is exactly why some Republicans like Representative Justin Amash and Senator Mike Lee want to see the agency abolished altogether. As Lee said earlier this year after submitted legislation that would do just that:
“The Export-Import Bank is a source of corporate welfare that puts taxpayers at unnecessary risk. Instead of subsidizing exports, which encourages an international corporate subsidy bidding war, we should be using multilateral agreements to eliminate business subsidies in all nations. The Ex-Im Bank has outlived its usefulness and it’s time to end the Bank’s market distortion and political cronyism.”
The above quote gets at the main criticisms of the bank:
- It puts taxpayers on the hook for loans made by the bank;
- It substitutes political decision-making for market-based decision-making and therefore distorts the economy; and
- It encourages other countries to retaliate with subsidies of their own, thus distorting the global marketplace.
The first argument is probably the most powerful for most voters, after all the memory of the Fannie and Freddie bailouts are fresh in people’s minds. The bank last required a bailout in 1987, after a decade of rising interest rates sapped its profitability. As interest rates are likely to rise again at some point in the future (they’ve got nowhere to go but up), something like this could occur again. On the other hand, the bank has been consistently profitable since 1992, returning billions of dollars in profits to taxpayers. In the end, this sort of thing likely evens out.
The second argument that export subsidies distort market is the more legitimate attack on the bank. After all, if the bank is making money from the loans and guarantees it gives to U.S. exporters, why aren’t private institutions stepping in to compete for these profits? But Lee’s third criticism offers an explanation for the second: America isn’t operating in an environment of global free trade, but one where many countries subsidize their exports as well. Dr. Loren Thompson of the Lexington Institute compared the recent push by Tea Partiers to end the Ex-Im bank with the Regan Administration’s effort to phase out subsidies for commercial shipbuilding interests:
“In 1981, the newly-elected Reagan Administration decided it was time to phase out market-distorting subsidies for shipyards building ocean-going commercial vessels. However, it failed to seek similar action from other shipbuilding nations, each of which had its own subsidy programs. End result: the U.S. commercial shipbuilding industry collapsed . . .
You’d think that even Reagan’s most fervent admirers would have learned something from this experience. Unilateral disarmament doesn’t work any better in trade relations than it does in military affairs. Rather than following America’s example, overseas rivals take advantage of the situation to advance their own interests.”
Americans benefit greatly from exports, as it’s a means to increase growth without relying on consumer spending during a period when consumers don’t have a lot to spend. That’s why so many countries are eager to boost their exports and why resorting to financing subsidies is so widespread. But in a competitive environment, folks like Thompson argue it’s dangerous to pull the rug out from under U.S. exporters without help from international organizations like the OECD or WTO to make sure other countries are following suit. And hey, $1 billion per year in profit is nothing to sneeze at either.