President Obama and his allies in the business lobby say they need export subsidies to compete with China's export subsidies. One problem with that argument: U.S. export programs directly subsidize China's export programs.
The supposed rivals of the U.S. Export-Import Bank — the foreign governments the Obama administration uses to justify corporatism at home — are actually partners with American bureaucrats, politicians, and exporters who love the global subsidy jubilee that is export finance.
Ex-Im is a federal agency that subsidizes U.S. exports with taxpayer-backed loans and loan guarantees to foreign companies. While addressing the agency’s 2014 annual conference, Ex-Im President Fred Hochberg put up a slide of a regatta with each boat’s sail bearing a flag — the U.S. was speeding past Germany, catching up to China! The message: Exporting is a global competition. Hochberg told U.S. exporters, “At Ex-Im, we want to be the wind in your sails.”
This nationalistic talk in which America Inc., needs Ex-Im to win the gold medal in the Exporting Olympics may convince some congressmen, but it’s make-believe.
(It’s also bad economics. These countries are hurting their economies through these export subsidies. We shouldn’t emulate them.)
If Ex-Im is really our weapon in an economic war against China, then why does Ex-Im dedicate billions of dollars to subsidizing companies owned by the Chinese government? Ex-Im, for instance, gave a $75.8 million loan to the state-owned Industrial Commercial Bank of China, the largest bank in the world.
In 2013, Ex-Im approved an $18.2 million loan guarantee to the Export-Import Bank of China, according to U.S. Ex-Im's annual report, so that China’s Ex-Im would buy John Deere equipment. Is that how you treat an arch-rival?
South Korea has an Export-Import Bank, and it’s supposed to be a foe of ours. Calling South Korea a “serious competitor in the global marketplace,” Ex-Im’s Hochberg warns: “The South Korean government, with an economy less than one tenth of our size, finances more than three times the exports for South Korean companies than the United States finances for U.S. companies ...”
But Korea Ex-Im (KEXIM) and the U.S. Ex-Im signed a joint agreement in 2004 — not to cut subsidies, but to jointly subsidize aircraft sales to South Korea. “This agreement will further develop our working relationship with KEXIM, and bring new sources of financing to the aircraft industry," Ex-Im’s President Philip Merrill said at the time.
“This agreement will enhance the productive relationship between our two countries and agencies," KEXIM President Dong-Kyu Shin proclaimed.
Brazil, according to the nationalistic rhetoric of the Obama administration, is another of Team America’s main rivals in the Export Olympics. Brazil operates its own Ex-Im Bank as a division of the Banco Nacional de Desenvolvimento Economico e Social (BNDES). In real life, BNDES and Ex-Im are partners. In July 2010, Ex-Im and BNDES signed a “framework agreement” to “seek opportunities for jointly promoting investments and projects in Brazil that will benefit U.S. exporters and Brazilian companies.”
Coface is France’s Ex-Im Bank. Coface is technically a private company, but the French government guarantees its export credits. Elon Musk, founder of Tesla, also runs a company called SpaceX, which launches satellites. Musk, at the 2014 Ex-Im conference explained that he needed Ex-Im subsidies “because the French have this thing called Coface, which is very aggressive in providing low-cost funding.”
Musk knows of what he speaks: SpaceX’s largest single deal, in 2010, was part of project that received a $1.8 billion Coface guarantee.
Also, Ex-Im subsidizes Coface’s North American arm. “Ex-Im Bank Will Reinsure Coface North America’s Issue of Export-Credit Insurance,” blared an Ex-Im press release a few weeks after the agency’s 2012 reauthorization. Space News describes Ex-Im as “a challenger, and occasional partner, to the French Coface export-credit agency (ECA).”
Obama is currently using trade with Africa to justify Ex-Im. Of course, Africa’s Export-Import Bank receives loan guarantees from the U.S. Export-Import Bank (for instance, on a recent Kenya Airways purchase of a Boeing 787).
To recap the administration's argument: We need to battle foreign subsidies by subsidizing foreign subsidizers.
Obama and allies defend corporate subsidies by pretending to be in a global war for exports. But at the end of the day, these supposed rivals are allies advancing the causes of big business and big government.