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The Swept-Under-the-Rug costs of the Ex-Im Bank

September 10, 2014 in Economics

By Daniel J. Ikenson

Daniel J. Ikenson

Like all federal subsidy programs, the Export-Import Bank of the United States has cultivated a loyal following of corporate patrons who have grown accustomed to Washington flipping the bill for certain routine business costs. That is why the debate over congressional reauthorization of Ex-Im’s charter, which expires on Sept. 30, will reach a fever pitch this month. In the interests of fairness, free enterprise and economic growth, the Export-Import Bank should perish.

Ex-Im is a government-run export credit agency that arranges special financing to facilitate sales between U.S. companies and foreign customers. To many, that mission may seem benign, if not noble. Indeed, reauthorization supporters deploy the simple logic that since Ex-Im creates exports, and exports create growth and jobs, shuttering the bank will hurt the economy. But for those less easily seduced by such sleight of hand, there is more to the story. Ex-Im facilitates exports for some businesses, but at great cost to unsuspecting companies throughout the economy and across the 50 states.

In the interests of fairness, free enterprise and economic growth, the Export-Import Bank should perish.”

There are opportunity costs, representing the growth that would have occurred had Ex-Im’s resources been deployed optimally — or at least more efficiently — in the private sector. The “what-would-have-happened” counterfactual is difficult to estimate, however, as it requires a variety of assumptions about economic variables and their relationships. But it is a good bet that when government agencies make financing decisions based upon non-economic criteria, resources are not being used optimally.

There are also intra-industry costs — the relative disadvantages inflicted on direct competitors as a result of export subsidies flowing to a particular firm in the industry. If Ex-Im provides a $50 million loan to a foreign farm-equipment manufacturer to purchase steel from U.S. Steel Corporation, the transaction may benefit U.S. Steel, but it hurts firms like Nucor and the dozens of other domestic steel producers competing for the same customers at home and abroad. The $50 million “benefit” for U.S. Steel is a $50 million cost to the other steel firms. When government tilts the playing field in favor of a particular firm, it simultaneously penalizes the other firms in the industry and changes the competitive dynamics prospectively.

The downstream industry costs are borne by U.S. producers who compete with the subsidized foreign customer or who simply require the subsidized export for their own production. …read more

Source: OP-EDS

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