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Time to Acknowledge Ex-Im's Victims

June 19, 2014 in Economics

By Daniel J. Ikenson

Daniel J. Ikenson

As politicians and big-business lobbyists portray it, there is no downside to reauthorizing the charter of the Export-Import Bank (Ex-Im) of the United States. The bank provides low-rate financing to foreign customers of U.S. companies, which facilitates the objective of increasing exports and creating jobs. Everybody wins, so what’s not to like?

Well, besides putting U.S. taxpayer resources at risk and fostering too cozy a relationship between government and certain businesses, Ex-Im victimizes untold numbers of companies and their workers by effectively taxing their operations, while subsidizing their foreign competitors. These obscured consequences of a government program that presents itself as a costless public good warrant closer examination.

The obscured consequences of a government program that presents itself as a costless public good warrant closer examination.”

When Ex-Im provides financing to a foreign commercial airline — say Air India — so that it can purchase aircraft from Boeing on terms more favorable than the market permits, Air India and Boeing can raise their glasses and toast the U.S. taxpayer for filling a gap that might otherwise prevent the transaction or make its terms less favorable to both companies. Air India and Boeing both benefit.

But what about Air India’s U.S. competitors? How does Ex-Im’s role in the transaction affect them? An honest assessment requires looking beyond the immediate effects to obtain a more complete picture of the benefits and costs of Ex-Im’s involvement. Such an assessment leads to the inescapable conclusion that the subsidized transaction between Boeing and Air India makes U.S. carriers worse off. When Air India can purchase critical capital equipment at more favorable financing rates than, say, Delta Airlines, then Air India is conferred the benefit of lower costs, which enables it to compete more rigorously with Delta for air travelers on particular routes. Meanwhile, if Boeing is busy building and making deliveries for an artificially inflated global market, the prices for its domestic customers will also be artificially inflated. Thus, Ex-Im takes from Delta and gives to Boeing, quite literally “picking winners and losers.”

Delta’s complaint about the effects of Boeing’s subsidized sales to Air India is a real example. There are others. Cliffs Natural Resources, a mining company that operates three iron-ore mines in Minnesota and one in Michigan, objects to Ex-Im’s $694 million financing of an Australian iron mine’s purchases of U.S.-made bulldozers and trucks from Caterpillar, locomotives from General Electric and …read more

Source: OP-EDS

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