American Companies Don’t Need Ex-Im Loans to Compete

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Posted by Alexander Hendrie on Tuesday, June 16th, 2015, 10:30 AM PERMALINK

By the end of June, the charter of the Export-Import Bank will expire. The bank has attracted criticism for its ties to fraud, waste, and abuse and because the majority of its loans benefit a select few well-connected corporations that do not need assistance. However, supporters of the bank continue to claim that without the bank, small businesses have no hope of competing overseas. This claim is completely false, and if Congress is serious about standing up to crony capitalism, it must let Ex-Im expire.

Ex-Im supporters claim that 90 percent of transactions help small businesses. But as the Heritage Foundation points out, this “help” refers to application numbers, not loans in terms of dollar amount. In reality, the bank subsidizes less than two percent of imports and less than one percent of small businesses. Last year, 70 percent of Ex-Im loans subsidized one exporter.

Furthermore, the way Ex-Im defines a small business is very generous. While most government bodies define a small business as less than 500 employees, Ex-Im defines one as less than 1,500. This allows the bank to inflate its own importance to American exporters. 

Regardless, the overwhelming majority of exports occur without Ex-Im loans, according to a recent study by the Mercatus Center. In 40 states, Ex-Im provided guarantees for less than two percent of exports in 2014.

Those “small” businesses that rely on financial assistance to export can easily get the same service from private financiers. As the Washington Examiner’s Tim Carney points out, numerous trade finance professionals consider Ex-Im a competitor. If Ex-Im expires, the private sector can easily step in and provide the same services.

Not only does Ex-Im compete with the private sector, it also competes with other government programs. As Senate Small Business Committee Chairman David Vitter (R-La.) pointed out, the Small Business Administration already has three export credit programs that perform the same function as Ex-Im.

If Congress really wants to help American business compete overseas, they should not look to the Ex-Im bank. Instead, they should focus on approving free trade agreements that tear down trade barriers and allow US firms to compete on a level playing field overseas. America’s free trade partners purchased 12.8 times more US goods compared to non-free trade partners, despite several top economies being excluded such as China, India, Japan, Germany, and the United Kingdom.

 

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