One reason why the current economic recovery is unfolding so slowly is that the U.S. is running huge trade deficits. Theres an arcane debate unfolding in Congress right now that helps explain why America -- the worlds leading proponent of free trade -- is headed towards a $600 billion trade deficit this year. The debate revolves around whether Congress should reauthorize a little-known federal agency called the Export-Import Bank.
Arcane but not academic: when a country runs a trade deficit equal to four percent of its gross domestic product it knocks a similar percentage off its economic growth rate.
Ex-Im Bank as it is known was created during the Great Depression to help U.S. companies finance their exports when private lenders were unwilling to provide credit. That happens a lot when credit is tight or when political and economic conditions in purchasing countries are weak enough to worry commercial bankers.
More recently the bank has stepped in to level the playing field for U.S. companies when countries like China try to sway the decisions of foreign buyers by offering concessionary financing terms on their exports.
But free-market purists say Ex-Im Bank distorts market forces by providing exporters with an alternative to private lenders and hurts some U.S. companies by making it easier for their foreign competitors to purchase American technology. For example overseas airlines can buy Boeing transports using Ex-Im Bank credit that then might be flown in competition with U.S. airlines on international routes. The critics want the government to negotiate a phase-out of export credits with other nations to eliminate the distorting effect of such programs on trade flows starting with the export of airliners.
This sounds reasonable enough until you start thinking through how the logic the critics are using might be applied beyond airliners.
· Should the government offer no support for exports of chip-making equipment to Japan because the resulting output will compete with chips made in America?
· Should it decline to assist exports of machine tools to German auto makers because their cars will compete against those made in Detroit?
The critics respond that it isnt the governments job to pick winners and losers so those exports should only go forward if the companies can find private sources of financing in the marketplace.
That too sounds reasonable until you realize that every other major trading nation has an export credit agency and many of them assist local companies much more aggressively than America does. For instance the World Trade Organization has recently ruled that Airbus is in effect one big market distortion that never could have existed in the absence of government subsidies and those subsidies include help from three different European export credit agencies.
Or to take another example China recently gave local telecom company Huawei export assistance equal to what Ex-Im Bank gives all U.S. companies in a typical year.
Obviously U.S. exporters and lending companies cant compete with that kind of financial clout which is one reason why Huawei has been displacing U.S. companies in overseas markets (despite the fact that some of its technology appears to have been stolen from those same U.S. companies). Ex-Ims critics respond that the way to deal with this problem is to enter into negotiations with other nations to get rid of their export credit programs. That sounds like the way Jimmy Carter wanted to deal with Russias nuclear buildup -- through negotiations.
Ronald Reagan understood such negotiations go nowhere unless America bargains from a position of strength.
However what Ex-Ims critics propose particularly with regard to exports of aircraft is that America unilaterally disarm. What kind of incentive is that for Airbus and the rising airplane makers in China to negotiate in good faith?
The critics figure that Americas main producer of airliners Boeing can absorb the losses. Maybe it can maybe it cant. But it wont remain Americas biggest exporter and the hundreds of small contractors that contribute to each Boeing plane will be hurt for sure. Fact is 80 percent of Ex-Im transactions support the exports of small and medium-size U.S. firms and that doesnt even count all the small companies that supply big guys like Boeing.
So maybe critics of the Export-Import Bank need to give a little more thought to where their arguments ultimately lead.
Exports financed by Ex-Im Bank sustain 300000 jobs and the jobs arent costing taxpayers a cent to preserve because all of the banks expenses are covered by fees imposed on users of its services. Those services are a common-sense response to the international trading system as it actually exists rather than as we might like it to be.
Its far from perfect but the beginning of wisdom on this subject is to see that America cant make the system better if it decides to unilaterally disarm its exporters.
One reason why the current economic recovery is unfolding so slowly is that the U.S. is running huge trade deficits. Theres an arcane debate unfolding in Congress right now that helps explain why America -- the worlds leading proponent of free trade -- is headed towards a $600 billion trade deficit this year. The debate revolves around whether Congress should reauthorize a little-known federal agency called the Export-Import Bank.
Arcane but not academic: when a country runs a trade deficit equal to four percent of its gross domestic product it knocks a similar percentage off its economic growth rate.
Ex-Im Bank as it is known was created during the Great Depression to help U.S. companies finance their exports when private lenders were unwilling to provide credit. That happens a lot when credit is tight or when political and economic conditions in purchasing countries are weak enough to worry commercial bankers.
More recently the bank has stepped in to level the playing field for U.S. companies when countries like China try to sway the decisions of foreign buyers by offering concessionary financing terms on their exports.
But free-market purists say Ex-Im Bank distorts market forces by providing exporters with an alternative to private lenders and hurts some U.S. companies by making it easier for their foreign competitors to purchase American technology. For example overseas airlines can buy Boeing transports using Ex-Im Bank credit that then might be flown in competition with U.S. airlines on international routes. The critics want the government to negotiate a phase-out of export credits with other nations to eliminate the distorting effect of such programs on trade flows starting with the export of airliners.
This sounds reasonable enough until you start thinking through how the logic the critics are using might be applied beyond airliners.
· Should the government offer no support for exports of chip-making equipment to Japan because the resulting output will compete with chips made in America?
· Should it decline to assist exports of machine tools to German auto makers because their cars will compete against those made in Detroit?
The critics respond that it isnt the governments job to pick winners and losers so those exports should only go forward if the companies can find private sources of financing in the marketplace.
That too sounds reasonable until you realize that every other major trading nation has an export credit agency and many of them assist local companies much more aggressively than America does. For instance the World Trade Organization has recently ruled that Airbus is in effect one big market distortion that never could have existed in the absence of government subsidies and those subsidies include help from three different European export credit agencies.
Or to take another example China recently gave local telecom company Huawei export assistance equal to what Ex-Im Bank gives all U.S. companies in a typical year.
Obviously U.S. exporters and lending companies cant compete with that kind of financial clout which is one reason why Huawei has been displacing U.S. companies in overseas markets (despite the fact that some of its technology appears to have been stolen from those same U.S. companies). Ex-Ims critics respond that the way to deal with this problem is to enter into negotiations with other nations to get rid of their export credit programs. That sounds like the way Jimmy Carter wanted to deal with Russias nuclear buildup -- through negotiations.
Ronald Reagan understood such negotiations go nowhere unless America bargains from a position of strength.
However what Ex-Ims critics propose particularly with regard to exports of aircraft is that America unilaterally disarm. What kind of incentive is that for Airbus and the rising airplane makers in China to negotiate in good faith?
The critics figure that Americas main producer of airliners Boeing can absorb the losses. Maybe it can maybe it cant. But it wont remain Americas biggest exporter and the hundreds of small contractors that contribute to each Boeing plane will be hurt for sure. Fact is 80 percent of Ex-Im transactions support the exports of small and medium-size U.S. firms and that doesnt even count all the small companies that supply big guys like Boeing.
So maybe critics of the Export-Import Bank need to give a little more thought to where their arguments ultimately lead.
Exports financed by Ex-Im Bank sustain 300000 jobs and the jobs arent costing taxpayers a cent to preserve because all of the banks expenses are covered by fees imposed on users of its services. Those services are a common-sense response to the international trading system as it actually exists rather than as we might like it to be.
Its far from perfect but the beginning of wisdom on this subject is to see that America cant make the system better if it decides to unilaterally disarm its exporters.
